Higher oil prices act as a tailwind for energy companies. Typically, oil and gas stocks generate outsized profits when energy prices gain pace, pushing valuations higher.
Lower production numbers by countries part of OPEC+, a resilient macro economy, and geopolitical tensions have meant oil prices have surged over 20% year to date. So, here are two energy stocks you can consider buying as oil nears US$90/barrel.
Chevron stock
Valued at $US295 billion by market cap, Chevron (NYSE:CVX) is among the largest energy companies in the world. In the fourth quarter (Q4) of 2023, Chevron reported revenue of US$47.18 billion and adjusted earnings of US$3.45 per share. Comparatively, analysts forecast revenue at US$47.18 billion and earnings at US$3.21 per share in the December quarter.
Chevron’s balance sheet is solid, and it ended 2023 with single-digit net debt. Chevron emphasized it can cover its dividend and capital spending, even if oil prices move significantly lower.
Chevron pays shareholders an annual dividend of US$6.52 per share, translating to a forward yield of 4.1%. The oil giant returned US$26.3 billion to shareholders via dividends and buybacks in 2023, despite a 40% decline in profits compared to the year-ago period. Further, Chevron’s board of directors approved an 8% increase in quarterly dividends.
Chevron produced 3.1 million oil-equivalent barrels (BoE) each day in 2023 due to a 14% growth in the U.S. and higher capital expenditures. In 2023, Chevron allocated US$4.4 billion towards capital expenditures, an increase of 16% year over year.
Its production in the Permian Basin stood at 860,000 barrels per day (bpd) and is on track to touch one million bpd in 2025 — the energy heavyweight plans to increase production between 4% and 7% in 2024.
A few months back, Chevron announced a big-ticket acquisition of Hess for US$53 billion in stock, expanding its footprint in Guyana, an emerging crude oil producer.
Chevron stock has returned 200% to shareholders in the last two decades. After adjusting for dividends, total returns are much higher at 517%. Priced at 13 times forward earnings, CVX stock trades at a discount of 8% to consensus price target estimates.
Canadian Natural Resources stock
One of the most popular oil and gas stocks on the TSX, Canadian Natural Resources (TSX:CNQ) has crushed the broader markets, rising a whopping 1,400% since April 2004. Despite its outsized gains, CNQ stock offers shareholders a tasty dividend yield of 3.5%. While CNQ is part of a cyclical industry, the company has raised dividends by more than 20% in the last two decades, showcasing the resiliency of its cash flows and earnings.
Canadian Natural, valued at $116 billion by market cap, is a senior crude oil and natural gas production company with operations in Western Canada, the North Sea, and offshore Africa.
CNQ ended 2023 with a net debt of less than $10 billion and will now target to return 100% of free cash flow to shareholders through buybacks and dividends.
In 2023, it reported net earnings of $8.2 billion and adjusted funds flow of $15.3 billion, enabling it to return more than $7 billion to shareholders. In the last three years, CNQ has lowered net debt levels by $11 billion, delivering $21.5 billion to shareholders.
