A consolidation wave has washed over the oil patch this year. Several oil companies secured needle-moving acquisitions, including ConocoPhillips (NYSE: COP) and Devon Energy (NYSE: DVN).
Those two oil companies recently closed their deals. That should give them a lot of fuel to grow shareholder value in 2025 and beyond. Those catalysts make them look like great oil stocks to buy as we head into the new year.
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ConocoPhillips completed its acquisition of Marathon Oil in late November. The all-stock deal valued its rival at $22.5 billion, including the assumption of debt ($5.4 billion).
“This acquisition of Marathon Oil is a perfect fit for ConocoPhillips,” stated CEO Ryan Lance in the press release announcing the deal’s completion. He noted, “Marathon Oil adds high-quality, low cost of supply inventory adjacent to our leading U.S. unconventional position.” Overall, the company added over 2 billion barrels of resources at an estimated cost of supply below $30 per barrel.
ConocoPhillips expects the deal to be immediately accretive to its earnings, free cash flow, and return of capital per share. On top of that, the company anticipates capturing significant synergies. It initially expected to capture $500 million in cost and capital synergies during its first full year of ownership. It now predicts that number to be in excess of $1 billion over the next 12 months.
That helps drive the company’s view that it can return a lot more cash to shareholders in the future. ConocoPhillips has already increased its dividend by 34%. Meanwhile, it expects to deliver dividend growth in the top 25% of companies in the S&P 500 in the future. The company also plans to ramp its share-repurchase pace from $5 billion annually to $7 billion. It expects to buy back over $20 billion in stock over the next three years, which would allow it to retire the equivalent amount of equity it issued to close the deal within two to three years.
The combination of growing earnings, free cash flow, and capital returns could give ConocoPhillips the fuel to produce robust total returns in 2025 and beyond as long as oil prices cooperate.
Devon Energy closed its purchase of Grayson Mill Energy in late September. The oil company paid $5 billion in cash and stock.
The deal significantly enhanced the company’s position in the Williston Basin. It added 307,000 acres and 100,000 barrels of oil equivalent (BOE) per day of production, boosting its regional position to 430,000 acres and 150,000 BOE per day of output. That added scale will make Devon the third-largest onshore pure play producer in the U.S.
