How ConocoPhillips' Low-Cost Inventory Drives Competitive Advantage

ConocoPhillips COP has extensive oil and natural gas resources that it can develop while earning substantial profits, even if the price of oil declines.The upstream player had claimed on its first-quarter earnings call that it had identified sufficient oil and gas resources that could be developed and produced for decades, which would be highly economical.

The leading upstream player is confident that it will conduct the extraction, development and delivery of the oil to the market profitably even if the price of West Texas Intermediate oil drops to as low as $40 per barrel. Thus, ConocoPhillips has a significant competitive advantage, especially when the pricing environment of oil becomes challenging.

The company’s low-cost resources, which it highlighted in the transcript, are available both in the international market and in the United States. ConocoPhillips seems more confident with the resources in the United States, which it calls the Lower 48, comprising the prolific shale regions like the Permian Basin, Eagle Ford and Bakken. This clearly shows that ConocoPhillips’ business model remains resilient, and hence it can navigate the volatile and uncertain business environment, securing shareholders’ cash flows.

Are XOM & EOG’s Businesses Vulnerable to Oil Price?

Exxon Mobil Corporation XOM and EOG Resources, Inc. EOG are two leading energy players that can survive low oil prices.

ExxonMobil mentioned on its recent earnings call that it plans to lower its break-even costs to $35 per barrel by 2027 and $30 per barrel by 2030. Thus, this level of costs will be highly beneficial for XOM’s bottom line. In other words, ExxonMobil will remain profitable even if crude oil prices drop significantly, and it will earn substantially more when prices climb.

EOG Resources has a strong balance sheet and is committed to maintaining robust financials. EOG added that even if oil prices decline to below $45 per barrel, it aims to lean on its balance sheet strengths to navigate a challenging business environment.

COP’s Price Performance, Valuation & Estimates

Shares of COP have plunged 13.4% over the past year compared with the 9.6% decline of the composite stocks belonging to the industry.

From a valuation standpoint, COP trades at a trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 5.26X. This is above the broader industry average of 4.93X.

The Zacks Consensus Estimate for COP’s 2025 earnings hasn’t been revised over the past seven days.

COP stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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