In April 2020, oil prices fell below $0 as demand collapsed and producers ran out of storage. Now, oil is right on the cusp of $100 per barrel, a level not seen since 2014. This wild whipsaw has shocked oil and gas producers, many of which are still bruised and battered from a brutal 2020 -- a year when West Texas Intermediate crude averaged $39.17 per barrel. 

In response to higher oil and gas prices, Chevron (CVX -0.96%) and Crestwood Equity Partners (CEQP) are enjoying a flood of rising free cash flow. Here's why these two oil stocks are great ways to play the energy boom.

A person working on a drilling well

Image source: Getty Images.

A diversified energy giant built for the long term

Daniel Foelber (Chevron): In response to the pandemic-induced collapse in oil and gas demand, many companies were pressured to cut spending and production and take on debt to make ends meet. That left the industry undersupplied heading into 2021. And with geopolitical tensions on the rise and demand continuing to outpace supply, oil prices are knocking on the door of $100 per barrel.

Throughout the 2020 downturn, Chevron was one of the few oil majors that didn't cut its dividend. In fact, it raised it -- as it has done for over 35 consecutive years. Any oil and gas company can make a killing in an $80 (per barrel) or higher oil market. It's the ones that can outlast the downturns that pose the most attractive long-term upside for investors. Chevron has this resilience in spades thanks to its low cost of production -- which allows it to achieve breakeven free cash flow even when oil is in the low $40s per barrel.

One of Chevron's other advantages is its diverse business segments with exposure to the entire integrated oil and gas value chain of exploration and production, transportation and storage, and refining and marketing.

While wind and solar energy arguably have a brighter long-term future than oil and gas, there's no doubt that companies like Chevron and ExxonMobil that have been less inclined to divest in renewables than their European peers are in an enviable position right now. Chevron's relatively smaller renewable energy appetite lets it lean into oil and gas right now. And its 2020 acquisition of Noble Energy, which Chevron got for a ridiculously inexpensive price given where oil and gas prices are at now, further builds upon this competitive advantage.

The biggest question mark for Chevron is how it will perform over a multi-decade time horizon as renewable energy continues to carve out a larger slice of the energy mix. While it's easy to look at its concentrated position in oil and gas as a vulnerability, I would argue that much of the developed and developing world will still rely on oil and gas for many years to come. And given that Chevron is one of the best in the business, it is well-positioned to stick around over the long term and serve its customers even if renewables eventually overtake oil and gas.

Get paid to play the oil boom

Matt DiLallo (Crestwood Equity Partners): Crestwood Equity Partners is an energy midstream company focused on operating pipeline and processing infrastructure in America's best oil and gas production basins. That has the master limited partnership (MLP) perfectly positioned to prosper from booming oil prices.

Surging crude prices are fueling accelerated drilling activities across its three core basins. That's pushing additional volumes through its systems, helping boost its cash flow. It's also providing the company with new expansion opportunities. The MLP plans to invest $160 million to $180 million on high-return expansion projects this year, up from only $50.7 million last year. Driving Crestwood's growth is its recent acquisition of fellow MLP Oasis Midstream and three new infrastructure projects to support future production growth by a trio of producing partners. Those expansion projects will fuel even higher future cash flows as they come online.

Crestwood is generating a gusher of excess cash even with that spending increase. That's supporting the MLP's distribution. While it already yields an eye-popping 8.5%, Crestwood plans to increase its payout by 5% this year, fueled by improving oil prices and its Oasis deal. After factoring in the higher distribution and capital spending, Crestwood still expects to produce between $75 million and $135 million of free cash flow this year. Those funds will enhance its already strong financial profile. That will give it even more flexibility to capture new growth opportunities, like acquisitions and organic expansions, as they emerge. These potential upside opportunities could fuel even more distribution growth for Crestwood's investors in the coming years.

Crestwood stands to benefit from higher oil prices. They're fueling more volumes across its infrastructure and providing it with new expansion opportunities. Add in its big-time dividend, and it's a great way to play the oil boom. 

Two different choices worth considering now

Chevron and Crestwood are two completely different ways to play the oil boom. Chevron is a balanced dividend-paying company that has a 4.2% yield, while Crestwood Equity Partners has more than double Chevron's yield and much more relative upside to rising oil and gas prices. Risk-averse investors are better off sticking with Chevron, while those with a higher risk tolerance may prefer Crestwood Equity Partners.