Top 3 Oil Stocks to Buy in Barrels of Crude Oil Around $ 85
Oil prices continue to rise. Brent, the global benchmark for oil, recently hit $ 85 a barrel, while WTI, the benchmark for US oil prices, is just a few dollars behind. Crude prices are pushing to levels not seen since 2014.
Oil might have more to run. Rise of coal and natural gas prices are forcing power producers in Asia to burn oil, further tightening global supply.
The potential for even higher oil prices means that oil companies could generate even greater cash gains. Three oil companies positioned to take advantage of this market are ConocoPhillips (NYSE: COP), Devon Energy (NYSE: DVN), and Pioneer of natural resources (NYSE: PXD). Here’s why that makes them great stocks of oil to consider buying in today’s environment.
Improve an already solid plan
ConocoPhillips has built a huge cash war chest in recent years, positioning it to take advantage of opportunities in the oil market. The first came last year when it acquired Concho Resources amid market turmoil to bolster its low-priced position in the oil-rich Permian Basin. The $ 9.7 billion all-stock deal lowered its average cost of supply to below $ 30 WTI.
Meanwhile, the company recently took advantage of another opportunity. Global energy giant Royal Dutch Shell (NYSE: RDS.A)(NYSE: RDS.B) moving away from oil due to concerns about climate change. Because of this, he put his Permian Basin assets up for sale, which ConocoPhillips took back for $ 9.5 billion in cash. This is a very low price since the assets were on track to produce $ 1.9 billion in free cash flow over the next year based on the oil price outlook when the announcement of the agreed last month. As oil continues to rise, they could generate even more cash.
This acquisition will improve the operating plan of ConocoPhillips, which was already on track to produce massive free cash flow of $ 70 billion through 2030, assuming oil prices average $ 50. the barrel. With crude well above this level, ConocoPhillips could produce an even bigger geyser. She intends to use these funds to pay off her debt, increase her dividend and buy back shares, which should create additional value for its shareholders.
A growing burst of dividends
Devon Energy also took advantage of last year’s turmoil in the oil market to make a touching acquisition, merging with WPX Energy in a $ 12 billion deal. This combination reduced its costs so that Devon could fund its operations to $ 33 WTI this year. Because of this low cost, Devon also launched the industry’s first more variable fixed dividend program to return more of its free cash flow to investors.
With rising oil prices, Devon Energy dividend payments got bigger. In addition to its base quarterly dividend rate of $ 0.11 per share, Devon has paid additional dividends of $ 0.19, $ 0.23 and $ 0.38 per share over the past three quarters.
Variable payments will likely continue to increase. Devon only made $ 50.34 a barrel for its oil in the second quarter, as its oil hedges cost it $ 13.29 a barrel. With these low priced hedges set to expire, Devon’s cash flow is expected to continue to rise even as crude prices cool. It plans to pay up to 50% of its free cash flow via variable dividends each quarter, suggesting that investors could continue to reap a windfall.
Speed up the plan
Pioneer Natural Resources has also taken advantage of the turmoil in the oil market to strengthen its oil business over the past year. It acquired Parsley Energy in a $ 7.6 billion deal last October and spent $ 6.4 billion to buy DoublePoint Energy in April. Both transactions increased its scale in the Permian Basin, resulting in lower costs so that it could produce more oil for less money.
Pioneer’s original plan was to start returning some of its growing free cash flow to shareholders next year by adopting a dividend framework similar to Devon’s. However, soaring oil prices prompted Pioneer to accelerate its variable dividend program by declaring its first additional payment in August. At $ 1.51 per share, it was almost triple its basic dividend of $ 0.51 per share. With the recovery in oil prices and Pioneer’s cost-cutting initiatives starting to pay off, this payment could continue to rise in the coming quarters.
Profiting from rising crude oil prices
ConocoPhillips, Devon Energy and Pioneer Natural Resources have taken advantage of the turbulence in the oil market of the past year to bolster their oil businesses by making state-of-the-art acquisitions. These deals boosted their oil production while reducing costs, positioning all three to generate more cash flow. Because of this, they are profiting from rising oil prices these days. This gives them the funds to reward investors with higher dividends and share buybacks. These shareholder returns will likely continue to rise with oil prices, making this trio one of the top oil stocks to consider buying barrels of crude oil around $ 85.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.