Given the trade tensions that could lead to potential economic slowdowns, the future business environment of integrated energy companies remains uncertain. Furthermore, a deceleration in oil production growth is expected to limit earnings from the upstream activities. At the same time, the rising demand for renewable energy is adding uncertainty to the prospects of the Zacks Oil and Gas Integrated International industry, creating a bleak outlook.
Among the companies in the industry that will probably survive the business challenges are Exxon Mobil Corporation XOM, Chevron Corporation CVX and BP plc BP.
About the Industry
The Zacks Oil and Gas Integrated International industry covers companies primarily involved in upstream, midstream and downstream operations. These companies have upstream businesses in the United States (including prolific shale plays and the deepwater Gulf of Mexico), Asia, South America, Africa, Australia and Europe. Midstream operations of energy companies entail transporting oil, natural gas liquids and refined petroleum products. In downstream businesses, the firms buy raw crude to produce refined petroleum products. The companies’ downstream activities involve chemical businesses that manufacture raw materials for making plastics. The integrated players are now gradually focusing on renewables, leading to the energy transition. The firms aim to lower emissions from operations and cut the carbon intensity of the products sold.
3 Trends Shaping the Future of the Industry
Macroeconomic Volatility: The industry's integrated energy companies have been facing a challenging macro business scenario in refining, renewables and chemicals. There is almost no visibility in predicting the future business environment, considering the trade tensions that could lead to potential economic slowdowns.
Slowdown in Production Growth to Hurt Upstream Business: There has been a slowdown in oil production growth in the upstream businesses of integrated energy companies in the United States due to shareholder demands for a greater focus on returning capital rather than investing in production expansion. As production growth slows, output decreases, which can lead to reduced revenues. Since upstream operations depend heavily on volume to generate income, any stagnation in production growth has a direct and negative impact on their bottom line.
Growing Demand for Renewables a Concern: Governments, investors and stakeholders are placing growing emphasis on addressing climate change, leading to an increased demand for renewable energy. Consequently, the demand for products reliant on oil, natural gas and natural gas liquids is expected to decline, with solar and wind energy gaining prominence in the energy landscape. The integrated energy firms are adversely impacted by these trends as they are primarily engaged in the production and transportation of fossil fuels, such as oil, and selling refined petroleum products.
Zacks Industry Rank Indicates Bearish Prospects
The Zacks Oil and Gas Integrated International industry is part of the broader Zacks Oil - Energy sector. It carries a Zacks Industry Rank #183, which places it in the bottom 26% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider, let’s take a look at the industry’s recent stock market performance and valuation picture.
Industry Underperforms Sector and S&P 500
The Zacks Oil and Gas Integrated International industry has underperformed the broader Zacks Oil - Energy sector and the Zacks S&P 500 composite over the past year.
The industry has plunged 11.2% over this period compared with the S&P 500’s gain of 11.5% and the broader sector’s decline of 7.9%.
One-Year Price Performance
Industry's Current Valuation
Since oil and gas companies are debt-laden, it makes sense to value them based on the Enterprise Value/Earnings before Interest Tax Depreciation and Amortization (EV/EBITDA) ratio. This is because the valuation metric takes not just equity into account but also the level of debt.
On the basis of the trailing 12-month EV/EBITDA, the industry is currently trading at 3.97X, lower than the S&P 500’s 15.32X. It is also below the sector’s trailing 12-month EV/EBITDA of 4.38X.
Over the past five years, the industry has traded as high as 6.54X and as low as 2.74X, with a median of 4.11X.
Trailing 12-Month EV/EBITDA Ratio
3 Integrated International Stocks to Keep a Close Eye on
BP: Along with the first-quarter 2025 transcript, BP revealed that it has started producing oil and gas from three key projects, namely, Cypre in Trinidad, Raven infill in Egypt and GTA (Greater Tortue Ahmeyim) in Mauritania and Senegal. With these developments, BP can increase its production capacity by a total of 100 thousand barrels per day (MBbl/D), thereby leading to its goal of increasing its production capacity by 250 MBbl/D by 2027.
Currently carrying a Zacks Rank #3 (Hold), BP also has a broader strategy for transitioning to lower-carbon energy solutions, which was reflected in its acquisition of Archaea Energy, a U.S.-based renewable natural gas (RNG) company, on Dec. 28, 2022. This is because after capturing methane emissions from landfills, Archaea converts them into renewable natural gas, which is a cleaner alternative to fossil fuels. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: BP
ExxonMobil: The acquisition of Pioneer Natural Resources boosts ExxonMobil's production capabilities in the Permian Basin, one of the most profitable regions in the United States due to its exceptionally low production costs. Further, XOM has a strong pipeline of projects encompassing offshore Guyana assets, also known for low-cost structures. It carries a Zacks Rank #3.
Price and Consensus: XOM
Chevron: In the Permian — the most prolific basin in the United States — Chevron is among the largest producers of oil and natural gas, securing a solid production outlook. Also, the large integrated energy player, with a Zacks Rank of 3, maintains a conservative stance regarding capital spending, resulting in handsome generations in cashflows.
Price and Consensus: CVX
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