Crude oil prices were relatively quiet last yr. Brent oil, the worldwide benchmark price, slipped 3%, closing the yr at around $77 a barrel. Meanwhile, WTI, the U.S. oil price benchmark, ended the yr right where it began at roughly $71 per barrel. Record production within the U.S. and weakness in China’s economy kept the market balanced, keeping a lid on crude prices.
Most analysts expect more of the identical in 2025, with the consensus that crude prices will remain within the $70s this yr. Due to that, oil stocks cannot depend on oil prices to pump up their share prices this yr. They’ll need other catalysts.
Two oil stocks with notable catalysts are ConocoPhillips(NYSE: COP) and Chevron(NYSE: CVX). That is one in every of the numerous reasons they’ve risen to the highest of my buy list this yr.
ConocoPhillips made a giant splash last yr. It acquired rival Marathon Oil in a $22.5 billion all-stock deal (which incorporates the belief of $5.4 billion of debt) that closed in late November. The highly accretive transaction further deepened its portfolio within the lower 48 states, adding over 2 billion barrels of resources at a median cost of supply below $30 per barrel (WTI).
The corporate initially expected to capture over $500 million in cost and capital synergies inside the first yr of closing the deal. It now anticipates that number will probably be over $1 billion inside the first 12 months. That may help boost its free money flow much more.
ConocoPhillips plans to return a meaningful percentage of its growing money flow to shareholders. It has already boosted its dividend by 34%. The corporate intends to deliver dividend growth in the highest 25% of firms within the S&P 500 (SNPINDEX: ^GSPC)in the longer term.
Meanwhile, it boosted its share repurchase rate from $5 billion annually to $7 billion. That has it on the right track to retire all of the equity issued to amass Marathon Oil inside the subsequent two to a few years. ConocoPhillips’s growing money flow and money returns should help give it the fuel to outperform its peers this yr if oil prices proceed to meander along within the $70-a-barrel range.
Chevron has been working on closing a needle-moving deal of its own. The oil giant agreed to purchase Hess in a $60 billion all-stock deal in October 2023. The transaction would significantly upgrade and diversify Chevron’s already world-class portfolio. It might enhance and extend the corporate’s production and free money flow growth outlook into the 2030s, helping it greater than double its free money flow by 2027 (assuming $70 oil).
There’s only one problem: Exxon believes the deal triggered a change of control clause referring to its joint development agreement with Hess and a 3rd partner (China’s CNOOC) in Guyana. The businesses are engaged in arbitration, with a ruling expected later this yr.
If Chevron wins, it will find a way to close its acquisition of Hess, which might significantly enhance its already robust long-term growth profile. While the corporate may lose its arbitration case, there’s reason to consider it can emerge victorious.
It isn’t solely buying Hess for its stake in Guyana. The acquisition would also bolster its U.S. onshore operations by adding the oil-rich resources of Bakken in North Dakota to its portfolio. As well as, it will add complementary positions within the Gulf of Mexico and Southeast Asia. These additions would enable Chevron to upgrade its entire portfolio.
Even when it loses, Chevron will probably be in a powerful position. It expects to grow its free money flow by greater than 10% annually through 2027 (assuming Brent averages $60 a barrel), fueled by high-return capital investments into its existing resource portfolio. That may enable Chevron to proceed increasing its dividend (which it has done every yr for over three many years) and repurchase shares at the highest end of its $10 billion to $20 billion annual goal range.
ConocoPhillips has already closed its needle-moving deal, and Chevron should find a way to wrap up its transaction this yr. Those acquisitions should provide these oil stocks with a big boost in 2025. That is why they stand out as the highest ones to purchase this yr.
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Matt DiLallo has positions in Chevron and ConocoPhillips. The Motley Idiot has positions in and recommends Chevron. The Motley Idiot has a disclosure policy.