ENB & COP Faceoff: Which Energy Stock is a Must-Hold for Investors?

In the oil and energy sector, upstream operations are highly vulnerable to fluctuations in oil and natural gas prices. In contrast, midstream activities, by their business model, generate stable fee-based revenues. This doesn’t mean that investors should always avoid exploration and production companies. However, the million-dollar question is:  given the current state of commodity prices, would it be wiser to hold off on upstream stocks for now?

To make this clear, let’s have a comparative analysis of ConocoPhillips COP and Enbridge Inc. ENB stocks. While ConocoPhillips is a giant in the exploration and production space, Enbridge is among the leading midstream energy companies.

ENB’s Take-or-Pay Contracts & Investment-Grade Credit Rating

The minimization of commodity price volatility and volume risks in ENB’s business model stems from regulated or take-or-pay contracts supporting 98% of its EBITDA. Further, more than 80% of the midstream energy firm’s profits are generated from activities where the company can automatically raise prices or fees. Thus, ENB is keeping pace with rising costs, which in turn protects its earnings and dividend payments even in a high inflationary environment.

This stability in the business model is leading to its investment-grade credit rating while providing long-term visibility to cash flows.

Enbridge’s C$28B Project Backlog: Incremental Cash Flows?

Enbridge is a leading midstream energy player in North America, operating an extensive crude oil and liquids transportation network spanning 18,085 miles — the world's longest and most complex system. ENB’s gas transportation pipeline network spans 71,308 miles, covering 31 U.S. states, four Canadian provinces and offshore areas in the Gulf of Mexico.

Enbridge’s pipelines transport 20% of the total natural gas consumed in the United States. The company generates stable, fee-based revenues from these midstream assets, as they are booked by shippers on a long-term basis, minimizing commodity price volatility and volume risks.

The midstream energy major will generate incremental cash flows from its C$28 billion backlog of secured capital projects, which include liquids pipelines, gas transmission, gas distribution and storage, and renewables. The maximum in-service date is 2029.

ConocoPhillips’ Business Outlook Seems Gloomy?

The U.S. Energy Information Administration (“EIA”) expects the West Texas Intermediate Spot Average price for 2025 and 2026 at $61.81 per barrel and $55.24 per barrel, respectively. The prices are significantly lower than the $76.60 per barrel price for 2024. EIA cited the increasing production volumes of the commodity to overcome yearly crude oil demand growth as the reason for lower oil prices. Thus, a lower pricing environment of the commodity represents a gloomy business outlook for ConocoPhillips, since significant volumes of its production comprise crude oil.

Notably, COP has already witnessed downward estimate revisions for 2025 and 2026 earnings over the past 30 days. This further represents analysts’ concerns over COP’s overall business environment.

COP’s High Tax Exposure in Certain Regions

In the March quarter of this year, ConocoPhillips had to pay more in taxes since a larger portion of its profits came from countries like Norway and Libya, where tax rates are higher. Eventually, the leading exploration and production company’s overall tax rate increased to about 40% compared to its earlier estimate of 36% to 37%. This primarily signifies that more money went to taxes, thereby leaving lesser available cash flows for investments or returning shareholders’ money.

Between ENB & COP, Which Stock Has the Edge?

The price chart will further clarify the gloomy business environment of COP and ENB’s stable business model. Over the past year, ENB jumped 35.4%, outperforming the oil-energy sector’s 4.6% decline and COP’s 25.1% fall.

One-Year Price Chart

The valuation picture further justifies that investors are willing to pay a significant premium for ENB compared to COP. Specifically, ENB is trading at a trailing 12-month enterprise value-to-EBITDA (EV/EBITDA) ratio of 15.25, significantly higher than COP’s 4.80.

However, that should not provide an incentive to the investors to buy ENB stock right away, as although tariffs and trade wars haven’t hurt the company’s business so far, it would be worth keeping a close eye on the stock. However, those who have already invested can retain ENB, carrying a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

For ConocoPhillips, investors can consider selling the stock now, which carries a Zacks Rank #5 (Strong Sell).

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

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