Oil is a vital part of the Canadian economy, and the energy sector employs a sizeable portion of the total workforce.
It’s one of the second largest sectors on the TSX (by weight), right behind financials.
There are a lot of oil companies in the country and plenty of options when it comes to the best oil stocks in Canada.
Best Oil Stocks In Canada
Before we go through the list, there are some terminologies associated with oil companies that you should know about:
Upstream: Upstream energy or oil companies focus on oil discovery, extraction, and production.
Midstream: Midstream companies primarily focus on the storage and transportation of crude oil, hydrocarbon liquids, gas, etc. This includes pipeline companies.
Downstream: Downstream companies focus on the consumer end of oil and derivatives, i.e., refining, marketing, and distribution.
Integrated: Integrated oil companies do it all, i.e., from extraction to refining and distribution.
There are various other kinds of oil companies as well, like companies that only focus on good drilling or industrial companies that cater specifically to oil/energy companies.
1. Enbridge Stock
- Ticker: ENB.TO
- Niche: Energy transportation/pipeline
- Forward Dividend Yield: 6.16%
- Dividend Payout Ratio: 140.66%
- Dividend Yield (12-Month Trailing): 6.33%
- Upcoming Dividend Date: Mar 01, 2023
- Market Cap: $110.11 Billion
- Forward P/E Ratio: 17.83
- Average Analyst Rating: 2.4 - Buy
Enbridge is responsible for transporting about 30% of all the oil produced in North America.
It has an extensive liquid and gas pipeline network, making it a key midstream player in the region that caters to many upstream producers.
As a pipeline company, its financials and stock are not as vulnerable to oil prices as most other oil companies since its revenue relies upon yearly contracts.
As long as there is oil and gas to transport in North America, Enbridge will remain a viable business. It also has some other business segments, including renewable power generation (over 5.1 GW).
The stock is coveted for its high dividends and Enbridge’s stellar dividend growth history (it’s a dividend aristocrat).
2. Canadian Natural Resources Stock
- Ticker: CNQ.TO
- Niche: Oil and natural gas producer
- Forward Dividend Yield: 4.45%
- Dividend Payout Ratio: 26.56%
- Dividend Yield (12-Month Trailing): 3.68%
- Upcoming Dividend Date: Jan 05, 2023
- Market Cap: $86.05 Billion
- Forward P/E Ratio: 8.51
- Average Analyst Rating: 2.2 - Buy
Canadian Natural Resources is one of the largest upstream companies globally and one of the largest heavy crude oil producers in the country.
It’s also huge when it comes to oil sands and natural gas. It has a variety of heavy and light crude assets in North America and offshore rigs in the North Sea and near Africa.
About three-fourths of its total production portfolio relies upon oil (heavy, light, oil sands), and it has a reserve life of around three decades.
The company’s stability reflects in its stock too, which survived the 2015 slump much better than its peers. It’s an outstanding dividend stock as well and a healthy dividend aristocrat.
3. Suncor Energy Stock
- Ticker: SU.TO
- Niche: Integrated energy company, oil sands
- Forward Dividend Yield: 4.79%
- Dividend Payout Ratio: 23.28%
- Dividend Yield (12-Month Trailing): 4.05%
- Upcoming Dividend Date: Dec 23, 2022
- Market Cap: $59.53 Billion
- Forward P/E Ratio: 7.19
- Average Analyst Rating: 2.4 - Buy
Suncor can be considered the oil sands king of Canada. It focuses on the Athabasca oil sands in Canada, one of the largest oil sands basins/deposits in the world (over 25 years of reserve life).
But the company’s true strength comes from it being a fully integrated company that focuses on everything, from extraction to distribution, using its extensive network of over 1,500 fuel stations across the country.
It has offshore operations near the UK as well as various renewable projects in the country.
Its portfolio of assets and services is already well-diversified, and the route the company is taking (like establishing a coast-to-coast EV charging network) fortifies its future.
The complexity of refining oil sands is balanced nicely with its richness as a resource.
4. Imperial Oil Stock
- Ticker: IMO.TO
- Niche: Integrated energy company
- Forward Dividend Yield: 2.43%
- Dividend Payout Ratio: 15.64%
- Dividend Yield (12-Month Trailing): 2.15%
- Upcoming Dividend Date: Apr 01, 2023
- Market Cap: $39.47 Billion
- Forward P/E Ratio: 7.37
- Average Analyst Rating: 2.8 - Hold
Imperial claims to be Canada’s second-largest integrated oil company. It has an extensive operation and resource network, including one of the largest in situ operations in the world (cold lake).
It has two other extraction/production sites fully and partially owned respectively and three refineries, one of which is responsible for about one-fourth of all energy products in Ontario.
The company also has an extensive petrochemical plant and a network of about 1,700 service stations (in partnership with Exxon).
5. Pembina Pipeline Stock
- Ticker: PPL.TO
- Niche: Energy transportation, pipeline
- Forward Dividend Yield: 5.38%
- Dividend Payout Ratio: 97.67%
- Dividend Yield (12-Month Trailing): 5.47%
- Upcoming Dividend Date: Dec 30, 2022
- Market Cap: $25.63 Billion
- Forward P/E Ratio: 14.7
- Average Analyst Rating: 2.3 - Buy
Another oil pipeline company that you should look into is Pembina Pipeline. It operates a network of about 18,000 kilometers of conventional oil sands and heavy pipelines.
As a midstream company, Pembina offers its upstream clients a variety of services in addition to its pipelines as a primary means of transportation.
These services include extraction and fractionation, storage, and marketing and distribution.
The stock offers a powerful blend of slow but consistent growth and generous payouts.
The midstream and primarily pipeline business make Pembina’s revenues relatively safe. Together, the safety and return potential make Pembina one of the best oil stocks in Canada.
6. MEG Energy Stock
MEG Energy is another major player in the Canadian oil sands. The company has access to long-term reserves (52 years), and the control the company exerts on GHG emissions puts it ahead of many of its peers.
The company doesn’t pay dividends, but the capital appreciation potential of the stock has been quite decent, at least in the last six years.
7. Parkland Stock
- Ticker: PKI.TO
- Niche: Fuel retailer
- Forward Dividend Yield: 3.85%
- Dividend Payout Ratio: 72.21%
- Dividend Yield (12-Month Trailing): 4.09%
- Upcoming Dividend Date: Jan 13, 2023
- Market Cap: $5.40 Billion
- Forward P/E Ratio: 11.84
- Average Analyst Rating: 1.9 - Buy
Parkland has a major competitive edge as the largest independent fuel retailer and marketer in Canada and Caribbean countries.
It operates in about 25 countries, including in the US, where it’s rapidly expanding its network.
The company also employs an aggressive acquisition strategy to grow its asset portfolio and its geographic reach and has grown its portfolio to over 2,400 sites already.
It’s also a dividend aristocrat, but its long-term capital appreciation potential stays the primary reason to consider investing in this downstream oil company.
Since its sites include both fuel stations and convenience stores, the business has become inherently diversified and less vulnerable to oil market headwinds.
8. Gibson Energy Stock
- Ticker: GEI.TO
- Niche: Midstream oilfield services
- Forward Dividend Yield: 5.99%
- Dividend Payout Ratio: 128.57%
- Dividend Yield (12-Month Trailing): 6.26%
- Upcoming Dividend Date: Jan 17, 2023
- Market Cap: $3.41 Billion
- Forward P/E Ratio: 17.72
- Average Analyst Rating: 3.0 - Hold
Gibson Energy offers a slightly different midstream service than the pipeline stocks above.
With a storage capacity of 14 million barrels in Alberta, the company is connected with about 25% of barrels of oil produced in Western Canada.
It also has a small pipeline network of about 500 km, but that’s mostly for its own internal transportation.
The stock offers relatively steady but slow growth, making it a good long-term oil stock to hold.
It has also shown great resilience compared to the sector as a whole, making it contrarian in a good way. It’s also a generous dividend stock.
9. Parex Resources Stock
- Ticker: PXT.TO
- Niche: Conventional oil and gas producer
- Forward Dividend Yield: 4.63%
- Dividend Payout Ratio: 13.01%
- Dividend Yield (12-Month Trailing): 2.53%
- Upcoming Dividend Date: Dec 30, 2022
- Market Cap: $2.51 Billion
- Forward P/E Ratio: 3.53
- Average Analyst Rating: 1.9 - Buy
Parex is a Canadian oil and gas producer with a Columbian asset base. These onshore but foreign assets allow the company to operate on a low-cost basis compared to its more Canadian-centric peers.
The company also scores consistently well in the ESG ratings, which can be an important factor for investors who don’t wish to invest in oil stocks primarily because they might bring the ESG profile of their entire portfolio down.
Whether it has been because of its foreign operations or some other factor, Parex is one of the few Canadian oil stocks that didn’t stagger brutally after the 2015 crash, and between that and early 2022, the stock grew by about 328%.
10. Nuvista Energy Stock
Nuvista Energy is an oil and gas exploration company that is primarily active in Alberta Deep Basin.
As an upstream company, it’s vulnerable to oil demand, but that’s also a strength when the demand rises (like it did post-pandemic).
The company has two major development focuses and is working on roughly 1,200 locations.
11. Tamarack Valley Energy Stock
- Ticker: TVE.TO
- Niche: Light oil drilling and acquisition
- Forward Dividend Yield: 3.06%
- Dividend Payout Ratio: 7.15%
- Dividend Yield (12-Month Trailing): 1.82%
- Upcoming Dividend Date: Feb 15, 2023
- Market Cap: $2.55 Billion
- Forward P/E Ratio: 3.91
- Average Analyst Rating: 1.8 - Buy
Tamarack Valley focuses on low-risk drilling assets in the Western Canadian Sedimentary Basin, which allows it to remain financially viable even when the oil prices fall.
Its portfolio leans more heavily towards light oil, which is easier to refine and might be more in demand compared to its heavier counterpart.
12. Petrotal Stock (TSXV)
Petrotal is an oil and gas exploration company focused on Peru. The company has experience in identifying valuable prospects in Northern Peru and developing them into viable oil-producing assets.
The company has become a very small fraction of its former glory and currently trades as a micro-cap stock, but that downgrading actually works in favour of investors.
13. Gear Energy Stock
- Ticker: GXE.TO
- Niche: Oil exploration and production
- Forward Dividend Yield: 2.31%
- Dividend Payout Ratio: 2.27%
- Dividend Yield (12-Month Trailing): 3.7%
- Upcoming Dividend Date: Feb 28, 2023
- Market Cap: $272.68 Million
- Forward P/E Ratio: 5.53
- Average Analyst Rating: 2.5 - Buy
Gear Energy is in the same business you would find many purely upstream micro-cap oil stocks in Canada, i.e., exploration and development. The company takes a strategic approach to asset acquisition and prides itself on a very healthy net debt to FFO ratio.
The bulk of its exploration is focused on one area with heavy and medium oil assets and two others with light oil prospects.
Through low-cost development and an aggressive debt reduction approach, the company is strengthening its financials.
U.S. Oil Stocks To Consider
If you are open to investing in US oil stocks, there are three that you should look into (all stocks trade on NYSE):
Exxon Mobil (XOM): Exxon is one of the largest oil and gas company in the world. It’s headquartered in Texas (the largest oil-producing state in the US) and focuses on both upstream and downstream operations.
It has about 10,000 fuel stations in the US alone. The stock offers a powerful mix of USD dividends and capital preservation, making it a worthwhile addition to your oil portfolio.
Chevron (CVX): Chevron is another of the ten largest oil companies in the world. It’s a fully integrated oil company that covers everything from exploration and production to refining and distribution.
It has a network of about 8,000 retail fuel stations in the US. It offers slightly better long-term growth potential compared to Exxon and relatively similar dividends.
Phillips 66 (EOG): It’s a downstream and midstream company spun off from larger ConocoPhillips, and compared to the other two US stocks, it’s relatively small but still a sizeable oil giant.
Oil As An Investment
Oil, or black gold as it was called once upon a time, was the most valuable commodity and resource in the world until data replaced it.
And even though its importance when it comes to moving the world is still undiminished, a significant shift is coming, and you should know about it before divesting a portion of your capital to oil stocks. That requires understanding oil as a commodity.
In 2021, about 95.5 million barrels of oil were produced daily (on average). It’s the highest number yet and a significant step up from 2020, the only year in recent history when oil demand slumped so low that its futures fell to negative territory.
Most of the oil in Canada and the US is used for transportation: 60% for Canada and about 66% for the US. The industrial sector consumes about 30% of oil, and the rest is used in the commercial and residential sectors.
And even though the trend varies from country to country, the bulk of the world’s oil is used in transport (roughly two-thirds), and that’s one area where oil might see serious competition in the coming years.
Oil and the Environment
Coal is by far the most polluting fossil fuel source, but oil is right behind it. And most of the oil produced is used as fuel for transportation, emitting Greenhouse Gases (GHG).
That’s one of the reasons why there is a solid push to switch to Electric Vehicles (EVs). The concept is that EVs powered/fueled by clean electricity will help the world curb one of the largest sources of GHG emissions.
So theoretically, the most effective use of oil in the current market (fuel for vehicles) will mostly be gone one day when EVs are everywhere.
That point is far away in the future. EVs only make up a small portion of the total vehicles currently on the roads around the globe (around 1%). And it may take decades till they even cross the 50% threshold.
And the impact on oil companies/oil stocks might still be not as adverse as you might think because most oil companies are also gas companies, the cleaner fuel source.
Simply put, oil stocks are viable investments, and they will remain so for decades to come.
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Both Canada and the US have their fair share of oil companies, so investors have a decent pool of potential assets to choose from.
Dividends are common and sustainable, but growth can be a bit tricky to take full advantage of. The best way to take advantage of the cyclical growth pattern of most oil stocks would be to buy the dip.
If you want to raise the ESG profile of your portfolio after buying some oil stocks, these ESG stocks might be worth considering.