Oil Prices Stagnant, But These Two Stocks Are Ready to Soar
The oil market experienced a relatively calm year in 2024, with Brent oil prices slipping 3% to close at around $77 a barrel, while WTI prices remained steady at roughly $71 per barrel. This stability was largely due to record production in the US and a weakening Chinese economy. As a result, most analysts predict that crude prices will remain in the $70s this year, which means oil stocks will need to rely on other catalysts to drive their share prices.
ConocoPhillips: A Game-Changing Acquisition
One oil stock that stands out is ConocoPhillips (NYSE: COP). The company made a significant splash last year with its $22.5 billion all-stock acquisition of Marathon Oil, which added over 2 billion barrels of resources at an average cost of supply below $30 per barrel (WTI). This highly accretive transaction is expected to generate over $1 billion in cost and capital synergies within the first year, boosting the company’s free cash flow.
ConocoPhillips plans to return a significant percentage of its growing cash flow to shareholders, having already increased its dividend by 34%. The company aims to deliver dividend growth in the top 25% of companies in the S&P 500 in the future. Additionally, it has boosted its share repurchase rate from $5 billion annually to $7 billion, putting it on track to retire all the equity issued to acquire Marathon Oil within the next two to three years.
Chevron: A Megadeal in the Making
Another oil stock with a notable catalyst is Chevron (NYSE: CVX). The company agreed to acquire Hess in a $60 billion all-stock deal in October 2023, which would significantly upgrade and diversify its portfolio. The transaction would enhance and extend Chevron’s production and free cash flow growth outlook into the 2030s, helping it more than double its free cash flow by 2027 (assuming $70 oil).
Although Exxon has raised concerns about a change of control clause relating to its joint development agreement with Hess and CNOOC in Guyana, Chevron is likely to emerge victorious in the arbitration. Even if it loses, Chevron will still be in a strong position, with plans to grow its free cash flow by more than 10% annually through 2027 (assuming Brent averages $60 a barrel).
Why These Oil Stocks Stand Out
Both ConocoPhillips and Chevron have made significant moves to boost their portfolios and cash flow. With their acquisitions, they are well-positioned to outperform their peers in 2025, even if oil prices remain stagnant. These oil stocks offer a compelling investment opportunity, with their growing cash flow and cash returns set to drive their share prices higher.
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