ConocoPhillips or ExxonMobil: Which Oil Major Looks Stronger Today?

ExxonMobil Corporation XOM and ConocoPhillips COP are major energy giants, both having a strong upstream presence. Over the past year, ExxonMobil has gained 2.2%, outpacing the 15.6% decline of COP.

One-Year Price Chart

Before making investment decisions, let's first analyze the business prospects and fundamentals of both energy giants.

ExxonMobil’s Robust Upstream Presence

XOM has a strong footprint in the Permian, the most prolific oil and gas play in the United States, and offshore Guyana. In the Permian, the integrated giant has been employing lightweight proppant technology and hence has been capable of boosting its well recoveries by up to as much as 20%.

In Guyana, XOM has made several oil and gas discoveries, further highlighting the company’s solid production outlook. Notably, record production from both resources has been aiding its top and bottom lines. Importantly, in both resources, the breakeven costs are low, thereby aiding ExxonMobil in continuing its upstream business even during a low crude pricing environment.

Strong Lower 48 Presence of ConocoPhillips

ConocoPhillips has a strong presence in the Lower 48, which comprises the Permian – the most prolific basin in the United States –, Eagle Ford and Bakken. The company’s acquisition of Marathon Oil late last year has further bolstered its footprint in the prolific Lower 48.

The breakeven costs in the resources are low, enabling COP to sail through the business environment when oil prices turn low.

Which is a Better Stock? XOM, COP

Before getting to the investment conclusions, one should know that XOM’s resilient refining operations give support when oil prices turn low, and the upstream business suffers. ExxonMobil highlighted on its third-quarter earnings call that low-value fuel is getting upgraded in its Singapore Resid Upgrade to high-value end products, thereby meeting the growing demand for cleaner fuels.

Thus, it has been a clear fact that XOM has a more stable business since it is an integrated energy giant with both upstream and downstream presence. On the contrary, ConocoPhillips is primarily an upstream energy major and is thus more vulnerable to oil and gas price volatility.

Since XOM is more stable, investors are willing to pay a premium for the stock over COP. This is reflected by the fact that ExxonMobil trades at a trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 7.44X, which is above COP’s 4.75X.

To conclude, risk-averse investors can hold ExxonMobil stock, while investors willing to take risks could retain ConocoPhillips stock to benefit from a low breakeven cost.

Currently, both XOM and COP carry 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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