Crude oil prices have been pretty quiet so far this year. WTI, the primary U.S. oil price benchmark, has hovered around $70. Several factors are supporting this oil price, including OPEC's decision to hold back supplies, continued economic growth, and war-driven concerns about potential future supply disruptions.
That price point is an ideal level for many top oil stocks. Industry leaders like ConocoPhillips(NYSE: COP), Devon Energy(NYSE: DVN), and EOG Resources(NYSE: EOG) can produce prodigious cash flows at $70 crude oil. Because of that, they are great oil stocks to buy right now for those seeking to cash in on the current environment.
Returning $10 billion to shareholders
ConocoPhillips has transformed its operations over the years to become a low-cost oil producer. The U.S. oil giant has sold higher-cost oil assets and recycled that capital into acquiring lower-cost resources. It capped its transformation off last year by acquiring Marathon Oil in a $22.5 billion deal. That purchase added over 2 billion barrels of oil and gas resources with an average cost of supply below $30. That further enhanced ConocoPhillips' resource portfolio, which has over 20 billion barrels of resources with an average cost of supply at $32 per barrel.
With a supply cost that low, ConocoPhillips can cash in on $70 crude oil. The oil company expects to produce enough cash to cover the $12.9 billion it plans to invest in capital projects to maintain and grow its production this year, while also returning $10 billion to shareholders. That cash return will come in the form of its dividend (ConocoPhillips boosted its payout by 34% late last year) and share repurchases. That's an increase from the $9.1 billion it returned to investors last year through dividends ($3.6 billion in dividends and variable return of cash payments) and $5.5 billion in repurchases.
Those rising cash returns could help give ConocoPhillips the fuel to produce strong total returns for its investors this year if oil continues to hover around $70 a barrel.
Sending back 70% of its windfall to investors
Devon Energy has followed a very similar blueprint as ConocoPhillips by selling off higher-cost assets and recycling the proceeds into low-cost operations. It most recently bought Grayson Mill Energy to bolster its position in the Williston Basin of North Dakota. The company has large-scale resource positions across several key U.S. oil and gas production basins, led by the Delaware Basin of Texas and New Mexico, where it has an average breakeven level of $40 oil.
The company's growing scale and low-cost operations enable it to produce a lot of cash at $70 crude oil. Devon expects to invest up to $4 billion to maintain and grow its production this year. That positions it to produce more than $3 billion of free cash flow at $70 oil.
Devon plans to return up to 70% of its free cash flow to shareholders via dividends and repurchases. It's currently prioritizing share repurchases (versus paying variable dividends) due to the value it sees in its stock price. Those value-enhancing repurchases could help fuel attractive total returns for its investors.
Returning everything to investors
EOG Resources has built a low-cost oil and gas producer from the ground up. The company has focused on exploring for additional low-cost resources throughout the U.S. That strategy has paid off. It currently controls a resource portfolio of more than 10 billion barrels of oil equivalent that can generate an average direct after-tax rate of return above 55% at $45 oil.
The company's low-cost, high-return resource base enables it to produce strong free cash flow. EOG Resources estimates it can generate $4.7 billion in free cash flow this year at $70 oil after investing $6.2 billion into its capital program. Given its strong balance sheet, EOG Resources plans to return over 100% of its free cash flow to investors in the near term. It will do that through a growing regular dividend, opportunistic share repurchases, and special dividends. That robust cash return could help fuel strong total returns for investors.
Well-oiled, cash-gushing machines
ConocoPhillips, Devon Energy, and EOG Resources built oil companies that can thrive at low oil prices. Because of that, they're cashing in as crude hovers around $70 a barrel. They're producing more than enough cash to support their capital programs, which is allowing them to return most of their excess free cash flow to shareholders through dividends and meaningful share repurchase programs. That puts them in strong positions to produce above-average total returns for their investors, making them great oil stocks to buy to cash in on the current environment.
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