Following a challenging year for oil prices, Shell and BP present themselves as appealing options for passive income. However, my focus is directed towards energy shares beyond the FTSE 100.
Chord Energy (NASDAQ:CHRD) stands as the largest independent oil producer in the Williston Basin, adopting a distinct strategy compared to the major oil corporations.
Investor Returns
With oil prices projected at $70, the company expects to return $13 per share to investors in 2024 through dividends and share repurchases. Given the current share price of $119, this equates to a nearly 11% return.
It is important for investors to be aware of certain risks. A similar performance in 2025 is not assured; potential tax reductions in the United States could lead to increased oil supply, which may drive prices down.
Additionally, Chord does not disclose the break-even price of its assets in its investor communications, complicating the assessment of how lower oil prices might impact the company.
This aspect renders it a riskier investment than I typically pursue. Nevertheless, I believe the opportunity is distinctive, and I am prepared to accept this risk as part of a diversified investment portfolio.
What Sets Chord Apart?
Chord’s potential uniqueness lies in its minimal investment in exploration projects. In contrast to companies like ExxonMobil and Chevron, it prioritizes returning profits to its shareholders.
A notable limitation of this approach is that oil wells have a finite lifespan. Once they are depleted, the company must identify ways to replenish its resources; otherwise, its profits will diminish.
Instead of financing speculative ventures, Chord opts to grow by acquiring other firms with established assets. A recent example of this strategy is its $4 billion acquisition of Enerplus in May.
While this growth strategy may pose risks to the company’s balance sheet, Chord is currently in a robust position, with a leverage ratio approximately one-third that of its competitors and one-fifth of the average for the S&P 500.
UK Oil
Both Shell (4.5%) and BP (6.1%) offer attractive dividend yields.
