Oil Companies Enter 2027 With Their Strongest Balance Sheets in Years. Here's What to Expect Next Year.
Yahoo Finance ·
Oil is a volatile commodity, a fact you have to accept if you are going to buy an energy stock like Chevron ( CVX +0.94% ) , ExxonMobil ( XOM +1.20% ) , Devon Energy ( DVN -0.68% ) , or Diamondback Energy ( FANG -0.77% ) . However, oil volatility can be both a negative and a positive. Right now, high oil prices are helping to strengthen energy company balance sheets. Here's what that means for investors in 2027. In 2020, during the coronavirus pandemic, oil prices cratered amid the economic shutdown used to slow the spread of the illness. It was a difficult time for the world, but energy companies were particularly hard hit. At one point, oil prices in the United States fell below zero. There were technical reasons for the brief and shocking decline, but it shows just how difficult a period it was for energy companies. To support their businesses during that period, oil companies across the industry drew on their balance sheets. Drilling focused Devon Energy's debt-to-equity ratio doubled in 2020. Peer Diamondback Energy's debt-to-equity ratio increased by nearly 80% before peaking in early 2021. And Exxon and Chevron, two of the world's largest and most diversified energy companies , saw their debt-to-equity ratios increase by roughly 70% in 2020. But today, with oil prices at lofty levels, the story is completely different. Debt-to-equity ratios are the lowest they have been in years. Exxon and Chevron are both below 0.2x, which would be a strong number for any business. Devon is slightly below 0.3x, and Diamondback Energy is just a touch above. These companies, and many more in the energy patch, are in a very strong financial position.
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