Wells Fargo has identified Shell (SHEL, Financial) and Hess (HES) as top picks in the integrated oil and international exploration and production sectors. Despite a cautious outlook on oil prices, the bank expects these companies to deliver positive returns by 2025 through strict spending discipline.
Analyst Roger Read notes that Shell is projected to maintain a significant free cash flow conversion of 65%-70% relative to its cash flow from operations by 2026. Shell has narrowed its valuation gap with U.S. peers due to lower capital expenditure and higher cash flow, which are attractive to investors.
Hess's strong exploration results in Guyana and its ongoing development position it favorably. The company could offer higher cash returns to shareholders if commodity prices exceed expectations.
