This past year has been a relatively quiet one for the oil market. After a brief bounce, crude prices are on track to end 2024 in the low $70s — right around where they began the year. There haven’t been any major supply disruptions, and demand has remained resilient.
It’s anyone’s guess what oil prices will do in 2025. I’ve seen predictions that crude will remain around its current level next year, while other prognosticators believe it could collapse to $50 a barrel. Given that oil prices are tough to predict, I’m going to leave that question alone.
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However, I do have a couple of rather bold predictions about some notable oil sector companies next year.
A wave of M&A activity has washed over the oil sector in recent years. ExxonMobil (NYSE: XOM) kicked things off in October 2023 when it agreed to buy Pioneer Natural Resources in a $59.5 billion all-stock deal. Its fellow oil giant Chevron (NYSE: CVX) followed that up with a bid to buy Hess (NYSE: HES) in a $53 billion all-stock deal a few weeks later. Several other oil companies also agreed to merge over the past year.
While ExxonMobil closed its needle-moving merger with Pioneer in May, Chevron has yet to wrap up its deal with Hess — and ExxonMobil is to blame for the delay. ExxonMobil believes that the Chevron/Hess merger agreement triggered a “change of control” provision in its joint development agreement with Hess and China’s CNOOC in Guyana. That provision gives ExxonMobil the right of first refusal to buy Hess’ 30% interest in the lucrative Guyana oil field.
The two companies are currently in arbitration, and a hearing is scheduled for May. I predict Chevron will win the case. While Hess’ position in Guyana is the main draw, it’s not the only factor driving Chevron’s acquisition. Adding the assets of Hess to its portfolio would also enhance the company’s existing operations in the Gulf of Mexico and Southeast Asia. On top of that, it would bolster the company’s U.S. onshore position with fields in the Bakken shale of North Dakota. Closing the Hess deal would really move the needle for Chevron, which could outperform in 2025 if it wins its case.
Energy Transfer (NYSE: ET) is one of the largest companies in the U.S. midstream sector. The master limited partnership (MLP) has invested heavily in expanding its operations over the years, both via organic capital projects and acquiring other midstream companies.
The company is a leading consolidator in the midstream space. Over the last few years, it has acquired Enable Midstream (2021), Woodford Express (2022), Lotus Midstream (2023), Crestwood Equity Partners (2023), and WTG Midstream (2024). These deals have ranged from $7 billion-plus merger deals with smaller MLPs (Crestwood and Enable) to simple purchases (Woodford, Lotus, and WTG).
I expect Energy Transfer will continue to gobble up other midstream companies. While it has many options, I predict that in 2025, it will buy Western Midstream Partners (NYSE: WES). That MLP focuses on providing gathering and processing services in the Delaware Basin in West Texas and New Mexico and the DJ Basin in northeastern Colorado — both areas where Energy Transfer already operates. A deal with Western Midstream seems more likely than others because the MLP’s parent company is Occidental Petroleum (NYSE: OXY), which has been selling down its stake to reduce its debt level. It could sell its remaining interest in Western Midstream to Energy Transfer, which could then offer to buy the rest of its outstanding units from outside investors. Such a deal would enable Occidental to rapidly monetize its position in the MLP and accelerate its debt reduction. Meanwhile, it would enhance Energy Transfer’s scale and growth profile.
M&A activity in the energy sector has been rolling along at an impressive clip over the past couple of years. I predict that will continue in 2025. Deals could help some companies (like Chevron and Energy Transfer) enhance their growth prospects while enabling others (like Occidental) to shore up their financial situations. Because of that, the continued surge in M&A could help create more value for energy sector investors in 2025 and beyond.
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Matt DiLallo has positions in Chevron and Energy Transfer. The Motley Fool has positions in and recommends Chevron. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
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