Jerome Hass, Portfolio Manager, Lightwater Partners
Focus: Canadian Oil & Gas Stocks
Top Picks: Enerflex, Total Energy Services, InPlay
MARKET OUTLOOK:
Geopolitics and Trump’s social media posts dominate short-term. Owning oil stocks will make filling up at the pump less painful for shareholders and provide an inflation hedge. The global oil market supply and demand balance remains tight. Inventories are the key; Chinese refineries started buying again. Chinese refinery utilization fell from 80 per cent (pre-Iran war) to bottom at 63 per cent in July; it has moved back up to 72 per cent.
Despite the day-to-day noise and volatility of oil prices, Canadian oil fundamentals are strong:
- 10-15 years of underinvestment globally in oil and gas exploration and development has left the rest of the world with shorter reserve lives and reduced drilling inventories. Not so in Canada where we have many long-life assets that will produce free cash flow (FCF) for decades.
- The Canadian oil patch has a new-found sense of fiscal discipline and a commitment to returning capital to shareholders. This contrast with the old-days of growing production by the drill bit.
- Better attitude of the federal government towards the oil & gas industry. There’s been a lot of talk. It remains to be seen whether anything gets done.
- Canadian oil stocks trade at an unjustified discount to their global peers in absolute and relative terms.
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TOP PICKS:
Enerflex (EFX TSX)
Enerflex is one of the most compelling ways to invest in the long-term growth of natural gas, LNG exports, and data centre power demand without taking direct commodity price risk. The company provides natural gas compression, processing, power generation, and water treatment solutions, making it a true “picks and shovels” play on rising gas infrastructure spending.
Enerflex is the market leader in Canada and among the top three players in the United States in gas compression and processing. The company generates revenue by: (i) building infrastructure, (ii) installing compression, (ii) operating equipment and (iv) maintaining assets. Importantly, approximately 65 per cent of gross margin is generated from recurring infrastructure and service revenue rather than one-time equipment sales, creating a more stable and predictable earnings profile.
The company’s recently announced landmark 450 MW behind-the-metre natural gas power generation contract validates a major emerging trend: large technology companies and data centre developers are increasingly bypassing traditional electrical grids and turning to dedicated natural gas-fired generation to support artificial intelligence (AI) and digital infrastructure growth.
EFX trades at 5.7 times enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) 2027. We think the stock is worth at least eight times valuation, equating to a $48 share price (40 per cent upside).
Total Energy Services (TOT TSX)
The stock that has been a star performer in our three funds year-to-date (YTD) (up 129 per cent). We have held the stock for 2.5 years and we are up about 300 per cent. Despite the recent stock run, TOT remains cheap at 4.3 times EV/EBITDA 2027.
Based in Calgary, Total operates across Canada, the United States, and Australia. The company is the second-largest provider of natural gas compression and processing services in Canada and also maintains leading positions in three additional segments: contract drilling, well servicing, and rentals & transportation.
The company is firing on all four cylinders. TOT heading into second quarter (Q2) results in August, the stock was covered by only one analyst, who was looking for a sector high growth of 16 per cent. TOT blew past those numbers delivering 31 per cent revenue growth and 34 per cent EEBITDA growth.
Historically viewed purely as cyclical oilfield services players, we believe both EFX and TOT are being viewed by the market as critical infrastructure players required to power next-generation technology which could lead to a significant sector re-rating. 15 years ago, TOT traded with a six to seven times multiple. At a modest 5.5 times valuation, the stock is worth $45 or 33 per cent upside.
InPlay (IPO TSX)
InPlay is a conventional light-oil producer focused on the Cardium formation, producing approximately 20,000 barrels of oil equivalent per day (boe/d) with an attractive low corporate decline rate of 23 per cent. About 75 per cent of production is supported by waterflooding, with much of the required infrastructure already in place. It also has approximately 15 years of drilling inventory with roughly one-year payouts.
Management is more acquisitive than we generally prefer and it has more debt than peers (1.2 times vs 0.2 times). However, IPO has a very strong history of being a good acquirer of assets at accretive metrics, improving drilling results and harvesting FCF. For example, in August 2026, IPO acquired a private company (directly offsetting their acreage) for $54 million in cash. It paid a very modest two times net operating income. At a two times multiple, we are happy to see similar tuck-in acquisitions.
InPlay also is fortunate to have a deep-pocketed institutional investor that holds 33 per cent of the stock and has shown a willingness to back-stop growth opportunities. This helps to lower its cost of capital relative to peers.
The stock is inexpensive at 3.3 times EV/DACF 2027 on strip pricing and has one of the highest FCF yields in the sector at 16 per cent. Residual cash supports a 6.5 per cent dividend yield, increasing buybacks and debt reduction, with leverage expected to exit the year at one time debt-to-cash flow. We think the stock is worth 4.5 times EV/DACF 2027 or $24 per share, about 35 per cent upside from the current price.
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| EFX TSX | N | N | Y |
| TOT TSX | N | N | Y |
| IPO TSX | N | N | Y |
PAST PICKS: AUG. 5, 2026
Gibson Energy (GEI TSX)
Then: $30.65
Now: $32.51
Return: 6%
Total Return: 8%
Cardinal Energy (CJ TSX)
Then: $10.73
Now: $13.13
Return: 22%
Total Return: 23%
Surge Energy (SGY TSX)
Then: $9.75
Now: $12.15
Return: 25%
Total Return: 25%
Total Return Average: 19%
| DISCLOSURE | PERSONAL | FAMILY | PORTFOLIO/FUND |
|---|---|---|---|
| GEI TSX | N | N | Y |
| CJ TSX | N | N | Y |
| SGY TSX | N | N | Y |
