Striking Oil: Navigating the Crude Landscape with Chevron and Devon Energy

The oil industry has faced a tumultuous period, with prices fluctuating in recent months. However, two oil giants, Chevron (NYSE: CVX) and Devon Energy (NYSE: DVN), have proven their resilience, poised to thrive even in a lower-price environment. This article delves into the strategies and advantages that make these companies standout oil stocks to consider in the current market.

Weathering the Storm: Chevron and Devon's Ability to Prosper at $70 Oil

Chevron's Advantaged Portfolio: Thriving at Lower Prices

Chevron has meticulously crafted a global resources portfolio that enables it to maintain high profit margins and returns on investments, even in the face of lower oil prices. The integrated energy giant has stress-tested its operations, considering a downside scenario of a flat $50 oil price from 2025 to 2027. In this bearish case, Chevron's robust cash flow from operations would be sufficient to cover its growing dividend and planned capital expenditures, allowing for a 3% annual production growth rate. Moreover, Chevron's strong balance sheet would enable it to repurchase shares within its $10 billion to $20 billion annual target range, effectively retiring around 3% of its outstanding shares each year.Chevron's upside scenario, which assumes a flat $70 oil price during the 2025 to 2027 period, paints an even brighter picture. Under this environment, the company could repurchase shares at the upper end of its target range, retiring up to 6% of its outstanding shares annually. This price point would also fuel a more than 10% annual growth in Chevron's free cash flow.To further enhance its ability to thrive at lower oil prices, Chevron is pursuing the acquisition of Hess Corporation. While the deal has faced some delays, the integration of Hess would significantly bolster Chevron's production and free cash flow growth profile. At $70 oil, the addition of Hess would more than double Chevron's free cash flow by 2027.

Devon Energy: Dirt Cheap and Actively Enhancing Profitability

Devon Energy has built a premier multi-basin oil and gas business in the United States, leveraging its growing scale to reduce costs and enhance profitability. The company's current breakeven funding level stands at a mere $40 per barrel, enabling it to generate substantial free cash flow at $70 oil. In fact, Devon's free cash flow yield at this price point is around 9%, more than double the free cash flow yield of the S&P 500 and triple that of the Nasdaq, suggesting that its shares are significantly undervalued.To further strengthen its position, Devon is acquiring Grayson Mill Energy, a move that will bolster its presence in the Williston Basin. The highly accretive acquisition will add high-margin production, enhanced by Devon's existing midstream infrastructure in the region, further increasing the company's free cash flow even at lower oil prices.Despite its ability to generate ample cash flow at $70 oil, Devon's shares have slumped nearly 25% from their peak earlier this year. Recognizing the disconnect between the company's fundamentals and its stock price, Devon has responded by significantly increasing its share repurchase authorization by 67% to $5 billion, which it expects to complete by the middle of 2026.

Navigating the Crude Landscape: Chevron and Devon as Compelling Oil Investments

While the recent slump in oil prices has undoubtedly impacted the cash flows of many oil companies, Chevron and Devon Energy have demonstrated their ability to thrive in this environment. Their low-cost operations and strategic initiatives have positioned them to generate substantial cash flow at $70 crude oil, making them attractive investment opportunities.Furthermore, both companies are actively enhancing their resilience to lower oil prices through accretive acquisitions, bolstering their production profiles and free cash flow generation. Chevron's pursuit of Hess and Devon's acquisition of Grayson Mill Energy are prime examples of their proactive approach to strengthening their competitive advantages.Investors seeking exposure to the oil sector should consider Chevron and Devon Energy as compelling options. Not only do these companies offer the potential for solid returns, but they also provide a degree of downside protection should oil prices remain subdued. With their strong balance sheets, cost-efficient operations, and strategic initiatives, Chevron and Devon appear well-equipped to navigate the current crude landscape and capitalize on any future price rebounds.