3 Integrated Energy Stocks Standing Tall Despite Soft Oil Price

The U.S. Energy Information Administration (“EIA”) expects rising inventories of oil to hurt crude prices. The soft crude pricing environment is thus likely to affect the integrated energy players' exploration and production operations. At the same time, the rising demand for renewable energy adds 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

Soft Oil Price to Hurt Cash Flows: In its latest short-term energy outlook, EIA projected the average spot price for West Texas Intermediate crude at $65 per barrel for 2025 and $48.50 per barrel for 2026. Both the projected prices were significantly lower than $76.60 per barrel in 2024, per EIA data. The expectation for lower oil prices will probably lead to a decline in cash flows from the upstream business.

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 #220, which places it in the bottom 9% 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 gained 3.6% over this period compared with the S&P 500’s surge of 19% and the broader sector’s improvement of 4.8%.

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 4.50X, lower than the S&P 500’s 18.57X. It is also below the sector’s trailing 12-month EV/EBITDA of 5.05X.

Over the past five years, the industry has traded as high as 6.54X and as low as 2.75X, with a median of 4.12X.

Trailing 12-Month EV/EBITDA Ratio

3 Integrated International Stocks to Keep a Close Eye on

BP has been investing heavily in oil and natural gas operations since it estimated that 55% of the global energy is generated from the commodities. Currently carrying a Zacks Rank #3 (Hold), the British energy giant is planning upstream capital investment of $10 billion through 2027, a notable increase from $8.5 billion in 2024. With key oil and gas projects yet to come online, BP expects to increase its daily production volumes to 2.3 million to 2.5 million barrels in 2030. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price and Consensus: BP

In the Permian, the most prolific basin in the United States, ExxonMobil has a strong presence. By the end of this decade, the energy major aims to boost its Permian production to 2.3 million barrels of oil equivalent (MMBoE/D), from roughly 1.6 MMBoE/D volumes it produced in the June quarter, thanks to the advanced technologies employed to enhance well recoveries.

In offshore Guyana, XOM has made massive oil and gas discoveries over the years, estimating the recoverable reserves at 11 billion barrels of oil equivalent. Notably, XOM carries a Zacks Rank #3.

Price and Consensus: XOM

Chevron is an integrated energy giant with a stable business model. In the Permian, the most prolific basin in the United States, CVX, with a Zacks Rank of 3, has a strong footprint. Also, the company’s downstream business is benefiting from the softer oil prices.

Price and Consensus: CVX

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Exxon Mobil Corporation (XOM): Free Stock Analysis Report
 
BP p.l.c. (BP): Free Stock Analysis Report
 
Chevron Corporation (CVX): Free Stock Analysis Report

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

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