Even with the fluctuating and uncertain conditions in the energy market, upstream companies are experiencing substantial gains from favorable oil prices. Furthermore, integrated energy firms' midstream segments continue to perform well, thanks to consistent revenues from fees associated with pipeline and storage facilities. This strong performance enhances the outlook for Zacks Oil & Gas US Integrated industry.
Leading contenders in the industry poised to capitalize on this favorable business environment include ConocoPhillips COP, Occidental Petroleum Corporation OXY, Cactus Inc WHD and Berry Corporation BRY.
About the Industry
The Zacks Oil & Gas US Integrated industry comprises companies primarily involved in upstream and midstream energy businesses. The upstream operations entail oil and natural gas exploration and production in the prolific shale plays of the United States. The integrated energy companies are also engaged in midstream businesses through gathering and processing facilities along with transportation pipeline networks and storage sites. Overall, the upstream business is positively correlated to oil and gas prices. The produced commodity volumes are transported through midstream assets, generating stable fee-based revenues. The integrated energy players in the United States also have access to downstream operations wherein the transported oil volumes are converted to finished products, comprising gasoline, natural gas liquids and diesel, through refining activities.
3 Trends Shaping the Future of the Industry
High Oil Prices: The price of West Texas Intermediate (“WTI”) crude is hovering around the $80-per-barrel mark, which is extremely favorable for exploration and production activities. Brent price is also handsome, trading at more than $80 per barrel. Per the U.S. Energy Information Administration, the WTI and Brent spot average prices will be $70.31 per barrel and $74.31, respectively, in 2025, suggesting that the upstream business environment will continue to favor integrated players.
Stable Fee-Based Revenues: Integrated companies’ midstream businesses are relatively less exposed to the volatility in commodity prices. This is because pipeline and storage assets are usually booked by shippers for the long term, securing stable fee-based revenues.
Strong Focus on Lowering Emissions: Integrated players in the industry, with operations spreading across the United States and abroad, have recognized climate change as a serious risk that needs to be addressed. The companies are now focused on reducing greenhouse gas emissions and flaring rates.
Zacks Industry Rank Indicates Bullish Outlook
The Zacks Oil & Gas US Integrated industry is a 15-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #57, which places it in the top 23% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright 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 Lags S&P 500 & Sector
The Zacks Oil & Gas US Integrated industry has underperformed the broader Zacks Oil - Energy sector and the Zacks S&P 500 composite over the past year.
The industry has gained 1.2% over this period compared with the broader sector’s growth of 16.8% and the S&P 500’s surge of 25.4%.
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 EV/EBITDA (Enterprise Value/ Earnings before Interest Tax Depreciation and Amortization) ratio. This is because the valuation metric takes into account not just equity but also the level of debt.
Based on the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), the industry is currently trading at 4.91X, lower than the S&P 500’s 18.23X. It is, however, higher than the sector’s trailing 12-month EV/EBITDA of 3.86X.
Over the past five years, the industry has traded as high as 14.35X and as low as 3.33X, with a median of 5.02X.
Trailing 12-Month Enterprise Value-to EBITDA (EV/EBITDA) Ratio
4 US Integrated Oil Stocks Moving Ahead of the Pack
ConocoPhillips
COP has achieved a promising production outlook by leveraging its extensive drilling inventory and diversified upstream assets. Compared to composite stocks belonging to the industry, the leading upstream energy company has considerably lower exposure to debt capital. This reflects that the company, currently carrying a Zacks Rank #3 (Hold), is better positioned to rely on its strong balance sheet to withstand any adverse business scenario.
Price and Consensus: COP
Occidental Petroleum
Investors are optimistic about oil prices and Occidental Petroleum's strong presence in the upstream sector. OXY, with a Zacks Rank of 3, is actively addressing its substantial debt burden, having reduced it from $47.6 billion in long-term debt as of the third quarter of 2019 to $25.5 billion by the third quarter of 2024.
Price and Consensus: OXY
Berry Corporation
Berry is primarily involved in exploration and production activities, with its operations spreading across low-decline, long-lived oil and gas reserves in California and Utah. The #3 Ranked company can comfortably sail through a volatile energy business environment, banking on its strong liquidity and fortress balance sheet. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: BRY
Cactus
The high crude pricing scenario is favorable for Cactus since it is engaged in selling or renting its products for drilling and completing onshore unconventional oil and gas wells. Cactus, with a Zacks Rank of 3, is dedicated to minimizing its own environmental impact, as well as that of its industry.
Price and Consensus: WHD
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