My Top 2 Oil Stocks to Buy in 2025

Crude oil prices were relatively quiet last year. Brent oil, the global reference price, it fell 3% and closed the year at around $77 a barrel. Meanwhile, WTI, the US oil price benchmark, ended the year right where it started at around $71 a barrel. Record production in the US and weakness of the Chinese economy maintain market balancekeeping a lid on crude oil prices.

Most analysts expect more of the same in 2025, with the consensus that crude oil prices will remain in the $70s this year. Therefore, oil stocks it cannot rely on oil prices to boost its stock prices this year. They will need other catalysts.

There are two oil reserves with notable catalysts ConocoPhillips (NYSE: COP) i Chevron (NYSE: CVX). This is one of the many reasons why they have risen to the top of my shopping list this year.

ConocoPhillips made a big splash last year. It acquired rival Marathon Oil in a $22.5 billion all-stock deal (which includes the assumption of $5.4 billion in debt) that closed in late November. The highly regarded transaction further deepened its portfolio in the lower 48 states, adding more than 2 billion barrels of resources at an average supply cost of less than $30 per barrel (WTI).

The company initially expected to capture more than $500 million in cost and capital synergies within the first year of the deal closing. He now expects that number to exceed $1 billion in the first 12 months. This will help increase your free cash flow even more.

ConocoPhillips plans to return a significant percentage of its growing cash flow to the shareholders. It has already increased its dividend by 34%. The company intends to offer dividend growth in the top 25% of companies in the sector S&P 500 (SNPINDEX: ^GSPC) in the future

Meanwhile, it increased its share buyback rate from $5 billion a year to $7 billion. That has it on track to retire all the shares issued to acquire Marathon Oil in the next two to three years. ConocoPhillips’ growing cash flow and cash yields should help fuel it to outperform peers this year if oil prices continue to meander. throughout in the range of $70 a barrel.

Chevron has been working to close a needle movement agreement of its own. The oil giant agreed to buy Hess in a $60 billion stock deal by October 2023. The transaction would significantly upgrade and diversify Chevron’s already world-class portfolio. It would improve and expand the company’s production and free cash flow growth prospects through the 2030s, helping it. more than double its free cash flow by 2027 (assuming $70 oil).

There’s just one problem: Exxon believes the deal triggered a change-of-control clause related to its joint development agreement with Hess and a third partner (China). CNOOC) in Guyana. The companies are engaged in arbitration, with a decision expected by the end of the year.

If Chevron wins, that can close its acquisition of Hess, which would significantly improve its already robust long-term growth profile. Although the company may lose its arbitration case, there are reasons to believe it will emerge victorious.

It’s not just buying Hess for its stake in Guyana. The acquisition would also strengthen its U.S. onshore operations by adding the oil-rich Bakken resources in North Dakota to its portfolio. In addition, it would add complementary positions in the Gulf of Mexico and Southeast Asia. These additions would allow Chevron to upgrade its entire portfolio.

These additional benefits are why I predicts that Chevron will close its megadeal for Hess this yearthat would provide he with a big momentum in 2025 and beyond.

Even if it loses, Chevron will be in a strong position. It expects to grow its free cash flow by more than 10% annually through 2027 (assuming Brent averages $60 a barrel), fueled by high-yielding capital investments in its existing resource portfolio . This will allow Chevron to continue raising its dividend (which it has done every year for more than three decades) and buy back shares at the high end of its annual target range of $10 billion to $20 billion.

ConocoPhillips has already closed its needle-moving deal, and Chevron should be able to close its transaction this year. These acquisitions should provide these oil stocks a big boost in 2025. That’s why they highlight how the best to buy this year.

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Matt DiLallo has positions in Chevron and ConocoPhillips. The Motley Fool has positions and recommends Chevron. The Motley Fool has one disclosure policy.

My Top 2 Oil Stocks to Buy in 2025 was originally published by The Motley Fool

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