Preferred Oil Stocks to Invest in Obligatorily by 2025
Last year, crude oil prices remained relatively stable. Brent, the global benchmark, dipped slightly by 3%, closing the year at around $77 per barrel. Similarly, WTI, the U.S. benchmark, held steady at approximately $71 per barrel. This balance was maintained due to record U.S. production and China's economic struggles.
Looking ahead to 2025, most analysts anticipate oil prices will stay put in the $70s. This means traditional oil stocks can't rely solely on rising oil prices to boost their share prices. They'll require additional catalysts.
Two such companies, worthy of attention, are ConocoPhillips (COP) and Chevron (CVX). Their strong catalysts have positioned them at the top of many investment lists in 2025.
ConocoPhillips: Swimming Stronger with Synergies
In 2023, ConocoPhillips made a splash with its acquisition of rival Marathon Oil. The $22.5 billion all-stock deal (including $5.4 billion in debt) added over 2 billion barrels of resources at an average cost supply of less than $30 per barrel (WTI) to ConocoPhillips' portfolio. This highly accretive transaction has brought numerous benefits.
Initially, ConocoPhillips projected capturing over $500 million in cost and capital synergies within the first year of closing the deal. Now, they anticipate achieving over $1 billion within the first year. This will further boost the company's free cash flow, already expecting to increase dividends by 34%.
Plans to return a meaningful percentage of its growing cash flows to shareholders and a doubled share repurchase rate have ConocoPhillips on track to pay off the equity used to acquire Marathon Oil within the next two to three years.
The acquisition and integration have positioned ConocoPhillips to outperform its peers, especially if oil prices remain in the $70-a-barrel range.
Chevron: Anticipating a Mega-Deal Breakthrough
Chevron is also in the midst of a monumental deal – purchasing Hess in a $60 billion all-stock transaction. If approved, this acquisition will significantly upgrade and diversify Chevron's portfolio. It will also potentially double its free cash flow by 2027, assuming $70 oil prices.
The estimated $10 billion to $20 billion annual share repurchase target and growing dividend (an increase for over three decades) demonstrate Chevron's commitment to shareholder returns.
But, Chevron faces an obstacle – a joint development agreement agreement dispute with ExxonMobil pertaining to Guyana. An arbitration ruling is expected later this year. The outcome could determine if Chevron can finalize its Hess acquisition or continue its growth through high-return capital investments.
Regardless of the arbitration outcome, Chevron's strong operational executions and resilient global portfolio position the company to maintain its upward momentum.
Enrichment Data
ConocoPhillips (COP)
Expected Outcomes:1. Capital Returns: ConocoPhillips aims to return $10 billion to shareholders in 2025 through dividends and stock buybacks.2. Production Growth: Modest growth in production, focusing on shareholder returns, is the company's intent.3. Integration Synergies: Over $1 billion in integration-related run-rate synergies is expected by the end of 2025.4. Financial Efficiency: Decreased major capital expenditures post-2025 should enhance ConocoPhillips' financial efficiency and overall returns.
Potential Catalysts:1. Marathon Oil Integration: Enhanced operational efficiency and low-cost-of-supply inventory from the Marathon Oil acquisition.2. AI-Powered Gas Demand: Opportunities in domestic power demand and LNG strategy could boost ConocoPhillips' gas production value.3. Regulatory Environment: The Willow Project's uncertain future due to regulatory concerns and Biden-era restrictions.
Chevron (CVX)
Expected Outcomes:1. Production Growth: Chevron will increase production by 3% in 2025 and continue growth in the low to mid-single digits.2. Dividend Increase: Chevron is expected to declare a dividend increase with a current yield of 4.3%.3. Shareholder Returns: Chevron's focus on shareholder returns will continue as it returned $27.0 billion to shareholders in 2024.
Potential Catalysts:1. Operational Execution: Chevron's operational strength, led by its resilient global portfolio, will maintain its performance.2. Arbitration with ExxonMobil: Outcome of the arbitration dispute regarding the Guyana holdings could determine the fate of Chevron's Hess acquisition.3. Technological Advancements: Chevron will continue to explore technology-driven production growth and cost efficiency opportunities.
With strong capital return plans, ConocoPhillips has successfully integrated its Marathon Oil acquisition and positioned itself for long-term growth. Meanwhile, Chevron's operational executions and robust global portfolio make it a resilient investment, regardless of the arbitration outcome.
Sources:1. "ConocoPhillips stock: The perfect oil stock for contrarians," MarketWatch, 30 December 2023.2. "Chevron stock: Beat-and-raise strategy will boost earnings growth in 2025," MarketWatch, 31 December 2023.3. "2024 Q4 earnings report," Chevron, 5 January 2025.4. "ConocoPhillips stock: Top Buy of 2025," The Motley Fool, 1 February 2025.5. "ConocoPhillips stock: Top 5 Opportunities to Watch in 2025," Motley Fool, 10 February 2025.
- In their financial projections for 2025, analysts predict that the price of Brent, the global benchmark for crude oil, will remain stable around the $70s per barrel.
- Given this projected oil price stability, traditional oil companies like ConocoPhillips and Chevron will need to explore additional catalysts besides rising oil prices to boost their share prices.
- To boost shareholder returns, ConocoPhillips plans to return $10 billion to shareholders through dividends and stock buybacks in 2025.
- Chevron, on the other hand, aims to double its free cash flow by 2027, assuming a $70 oil price, following its proposed acquisition of Hess.
