Crude oil prices have slumped this year. Brent, the global oil price benchmark, has fallen more than 10% on the year, pushing it into the low $60s. That slump will impact the cash flows that oil companies produce.
However, some oil stocks are in a better position to handle lower oil prices than others. TotalEnergies(NYSE: TTE), ExxonMobil(NYSE: XOM), and Chevron(NYSE: CVX) stand out to a few Fool.com contributors for their ability to continue thriving at lower crude prices. Here's a closer look at these top-tier oil stocks.
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TotalEnergies is ready for even lower oil prices
Reuben Gregg Brewer (TotalEnergies): With a diversified business model, TotalEnergies is well positioned to weather the ups and downs in oil prices. But that's true of every integrated oil company's diversified business model. What sets one oil major apart from another runs a bit deeper. For example, Chevron and ExxonMobil have low leverage, which allows them to take on debt during downturns to support their businesses and dividends. TotalEnergies, like European peers BP and Shell, makes higher use of debt.
But don't count TotalEnergies out because of that. It also carries a lot more cash, which brings its net debt-to-equity ratio down to around 15%. That's roughly in-line with Exxon and Chevron. Higher debt and more cash on the balance sheet aren't the same as just having less debt, but it suggests that TotalEnergies is more resilient to lower oil prices than investors might think.
That said, the real issue here is oil prices. And management is pretty clear that $60 a barrel isn't a problem. In fact, there wouldn't be a potential problem until $50 a barrel. That's because the company's break-even point, after paying the dividend, is below $50. There's a lot more room for adversity on the oil price front before there's a problem here.
So if you are wondering if TotalEnergies' lofty 6.7% dividend yield is sustainable even as oil prices drop into the $60s, the answer is yes because of its diversified business, strong finances, and efficient operations.
A rock-solid oil stock for all times
Neha Chamaria(ExxonMobil): In the oil and gas industry value chain, exploration and production companies -- also known as upstream companies -- take the biggest hit from falling oil prices since their earnings and cash flows rely heavily on energy prices. ExxonMobil's upstream segment accounted for almost 70% of its earnings in 2024. Yet, ExxonMobil is the kind of oil stock that has the wherewithal to not only survive but thrive during a down cycle thanks primarily to its financial discipline.
In fact, ExxonMobil expects its breakeven to drop to a price of only $35 per barrel of real Brent crude oil by 2027 and further to $30 per barrel by 2030. Simply put, ExxonMobil should still be able to fund all its planned capital projects and dividends even if oil prices drop to the $30s. Oil prices above the breakeven should only generate surplus cash for the oil giant.
At $55 real Brent per barrel, ExxonMobil expects to generate nearly $110 billion in incremental cash flow from operations by 2030, driven by its capital investments and ongoing efforts to cut costs. The company plans to invest nearly $140 billion on major projects, especially in the Permian Basin, through 2030.
That's a rock-solid profile and financial standing for an oil company, and it makes ExxonMobil one of the best oil stocks to own even when oil prices are falling. Income investors needn't worry either, as ExxonMobil continues to generate steady cash flows despite falling oil prices, has increased its dividend for 42 consecutive years, and is committed to dividend growth.
A leader in producing low-cost oil and gas
Matt DiLallo (Chevron): Few companies are in a better position to weather lower oil prices than Chevron. It has built one of the sector's most resilient upstream production portfolios. According to an estimate from Wood Mackenzie, Chevron has the industry's lowest upstream breakeven level at around $30 per barrel.
That's a testament to Chevron's organic exploration investments and strategic acquisitions of ultralow-cost oil and gas resources. For example, in 2020, Chevron bought Noble Energy in a $13 billion deal that boosted its oil and gas reserves by 18% for an average cost of less than $5 per barrel of oil equivalent (BOE). It followed that up in 2023, buying PDC Energy in a $7.6 billion deal that increased its reserves by 10% for less than $7 per BOE.
Chevron also boasts one of the strongest balance sheets in the sector. Its net debt ratio was 14% at the end of the first quarter. That was below its target range (20% to 25%) and near the low end of its peer group. That gives Chevron the financial flexibility to continue investing in its business and return cash to shareholders throughout the commodity price cycle. The oil giant has repurchased shares in 18 of the last 22 years and raised its dividend for 38 years in a row.
The company is investing heavily to grow its low-cost production. It has several projects underway that position it to generate an incremental $9 billion in annual free cash flow next year at $60 oil. Chevron is also working to acquire Hess in a $60 billion megadeal that will add billions of barrels of low-cost oil resources to its portfolio, further enhancing its production and growth outlook in the coming years.
Chevron's combination of low-cost resources, balance sheet strength, and visible growth catalysts makes it a great oil stock to buy and hold during the current lower oil price environment.
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Matt DiLallo has positions in Chevron. Neha Chamaria has no position in any of the stocks mentioned. Reuben Gregg Brewer has positions in TotalEnergies. The Motley Fool has positions in and recommends Chevron. The Motley Fool recommends BP. The Motley Fool has a disclosure policy.
