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A Closer Look at the U.S. Upstream Oil & Gas Industry
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The Zacks Oil and Gas - Exploration and Production - United States industry faces growing headwinds. With potential Republican-led policies encouraging increased domestic production, U.S. output could see a rise, expanding supply and likely softening oil prices. Additionally, China’s slowing oil demand, despite government stimulus efforts, may contribute to weaker global prices, especially if OPEC+ production cuts don’t offset the lagging demand. Further, rising renewable energy and electric vehicle adoption continue to challenge long-term oil consumption, with countries like China advancing electrification efforts, leading to an earlier-than-expected peak in its oil imports. However, Middle East tensions could push prices up quickly if conflicts threaten critical supply routes. Amid these dynamics, select companies like Civitas Resources (CIVI - Free Report) , Northern Oil and Gas (NOG - Free Report) , California Resources (CRC - Free Report) and Amplify Energy (AMPY - Free Report) stand out, offering solid fundamentals and strategic positioning.
About the Industry
The Zacks Oil and Gas - US E&P industry consists of companies primarily based in the domestic market, focused on the exploration and production (E&P) of oil and natural gas. These firms find hydrocarbon reservoirs, drill oil and gas wells, and produce and sell these materials to be refined later into products such as gasoline, fuel oil, distillate, etc. The economics of oil and gas supply and demand are the fundamental drivers of this industry. In particular, a producer’s cash flow is primarily determined by the realized commodity prices. In fact, all E&P companies' results are vulnerable to historically volatile prices in the energy markets. A change in realizations affects their returns and causes them to alter their production growth rates. The E&P operators are also exposed to exploration risks where drilling results are comparatively uncertain.
4 Key Trends to Watch in the Oil and Gas - US E&P Industry
Potential Increase in U.S. Oil Production: With the U.S. election results favoring a Republican administration, policies supporting increased hydrocarbon production may be enacted. Such an approach could lead to a significant rise in U.S. oil output, adding to global supply and putting downward pressure on oil prices. Increased domestic production would reduce dependency on foreign oil, potentially leading to a price reduction as supply levels rise.
Impact of Weakening Chinese Consumption: China's demand for crude oil remains a key determinant in global oil prices. Although government stimulus measures aim to boost economic growth, recent signs of slower demand growth from China have prompted OPEC+ production cuts. If demand from China does not recover as expected, global oil prices could remain subdued due to a combination of ample supply and restrained demand.
Geopolitical Tensions in the Middle East: Escalating conflict between Israel and Iranian-backed forces could disrupt oil supplies if it spreads to critical areas like the Persian Gulf or Straits of Hormuz. Such disruptions could spark sharp price spikes due to potential threats to Iran’s oil production or logistical chokepoints. Any intensification of hostilities would heighten supply fears, driving oil prices upward amid increased volatility.
Growing Renewables and EVs Threaten Oil Demand: The global shift to renewable energy and electric vehicles (EVs) presents a long-term challenge for oil demand. While renewable infrastructure growth is gradual, advancing technology and rising EV use are expected to reduce reliance on fossil fuels, potentially lowering oil prices. In China, rapid electrification is driving oil demand to peak earlier, with imports at 11.4 million barrels per day in 2023 projected to plateau by 2026 and then decline, furthering the global supply surplus and pressuring prices downward.
Zacks Industry Rank Indicates Bearish Outlook
The Zacks Oil and Gas - US E&P industry is a 32-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #237, which places it in the bottom 6% 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 challenging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are becoming pessimistic about this group’s earnings growth potential. While the industry’s earnings estimates for 2024 have gone down 27.7% in the past year, the same for 2025 have fallen 26.5% over the same timeframe.
Despite the dim near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Underperforms S&P 500 & Sector
The Zacks Oil and Gas - US E&P industry has fared worse than the Zacks S&P 500 composite as well as the broader Zacks Oil – Energy sector over the past year.
The industry has moved down 1.8% over this period compared with the broader sector’s increase of 5.3%. Meanwhile, the S&P 500 has gained 32.2%.
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. For capital-intensive companies, EV/EBITDA is a better valuation metric because it is not influenced by changing capital structures and ignores the effect of noncash expenses.
On the basis of the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), the industry is currently trading at 5.99X, significantly lower than the S&P 500’s 17.30X. It is, however, above the sector’s trailing 12-month EV/EBITDA of 3.35X.
Over the past five years, the industry has traded as high as 10.81X, as low as 3.29X, with a median of 5.99X.
Trailing 12-Month Enterprise Value-to EBITDA (EV/EBITDA) Ratio (Past Five Years)
4 Stocks to Consider
Civitas Resources: Based in Denver, Civitas Resources focuses on the DJ Basin in Colorado and the Permian Basin across Texas and New Mexico. With strong well returns and a valuable midstream component, Civitas is positioned for growth. The company has become a leading consolidator in the DJ Basin and offers substantial returns to shareholders, with a balanced production mix of 37% oil, 34% NGLs, and 29% natural gas.
The 2024 Zacks Consensus Estimate for Civitas Resources indicates 53.1% year-over-year revenue growth. With a Zacks Rank #3 (Hold), the oil and natural gas producer has a market capitalization of $5 billion. CIVI’s shares have lost 20.7% in a year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: CIVI
Northern Oil and Gas: Northern Oil and Gas’ core operations are focused on three leading basins of the United States — the Williston, Permian and the Appalachian. The upstream operator employs a unique nonoperating business model, which helps it to keep costs down and increase free cash flow.
Carrying a Zacks Rank #3, the 2024 Zacks Consensus Estimate for NOG indicates 18.3% year-over-year revenue growth. Northern Oil and Gas delivered a trailing four-quarter earnings surprise of roughly 13% on average. The company’s shares have gone up 15.1% in a year.
Price and Consensus: NOG
California Resources: It is a California-based independent oil producer with a strong focus on conventional, shallow oilfields, producing around 60% oil. Alongside its core E&P operations, CRC is expanding into carbon capture and storage. The company actively partners with CO2 emitters to permanently sequester CO2 in its depleted reservoirs, positioning itself as both an energy and carbon management leader in the state.
California Resources’ expected EPS growth rate for three to five years is currently 11.8%, which compares favorably with the industry's growth rate of 8.3%. CRC delivered a trailing four-quarter earnings surprise of roughly 13.1% on average. The Zacks Rank #3 (Hold) company’s shares have gained 13.4% in a year.
Price and Consensus: CRC
Amplify Energy: The Houston, TX-based operator has a strong presence in Oklahoma, Southern California and Texas, and has stakes such as Bairoil in the Rocky Mountains. Amplify Energy’s diversified operations — spread over five U.S. basins — mitigates pricing and operational disruptions, while its long-life, long-production assets generate sustainable cash flows.
The 2024 Zacks Consensus Estimate for Amplify Energy indicates 3.1% year-over-year revenue growth. With a Zacks Rank of 3, the oil and natural gas producer has a market capitalization of $267.5 million. AMPY’s shares have increased 19.6% in a year.
Price and Consensus: AMPY
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A Closer Look at the U.S. Upstream Oil & Gas Industry
The Zacks Oil and Gas - Exploration and Production - United States industry faces growing headwinds. With potential Republican-led policies encouraging increased domestic production, U.S. output could see a rise, expanding supply and likely softening oil prices. Additionally, China’s slowing oil demand, despite government stimulus efforts, may contribute to weaker global prices, especially if OPEC+ production cuts don’t offset the lagging demand. Further, rising renewable energy and electric vehicle adoption continue to challenge long-term oil consumption, with countries like China advancing electrification efforts, leading to an earlier-than-expected peak in its oil imports. However, Middle East tensions could push prices up quickly if conflicts threaten critical supply routes. Amid these dynamics, select companies like Civitas Resources (CIVI - Free Report) , Northern Oil and Gas (NOG - Free Report) , California Resources (CRC - Free Report) and Amplify Energy (AMPY - Free Report) stand out, offering solid fundamentals and strategic positioning.
About the Industry
The Zacks Oil and Gas - US E&P industry consists of companies primarily based in the domestic market, focused on the exploration and production (E&P) of oil and natural gas. These firms find hydrocarbon reservoirs, drill oil and gas wells, and produce and sell these materials to be refined later into products such as gasoline, fuel oil, distillate, etc. The economics of oil and gas supply and demand are the fundamental drivers of this industry. In particular, a producer’s cash flow is primarily determined by the realized commodity prices. In fact, all E&P companies' results are vulnerable to historically volatile prices in the energy markets. A change in realizations affects their returns and causes them to alter their production growth rates. The E&P operators are also exposed to exploration risks where drilling results are comparatively uncertain.
4 Key Trends to Watch in the Oil and Gas - US E&P Industry
Potential Increase in U.S. Oil Production: With the U.S. election results favoring a Republican administration, policies supporting increased hydrocarbon production may be enacted. Such an approach could lead to a significant rise in U.S. oil output, adding to global supply and putting downward pressure on oil prices. Increased domestic production would reduce dependency on foreign oil, potentially leading to a price reduction as supply levels rise.
Impact of Weakening Chinese Consumption: China's demand for crude oil remains a key determinant in global oil prices. Although government stimulus measures aim to boost economic growth, recent signs of slower demand growth from China have prompted OPEC+ production cuts. If demand from China does not recover as expected, global oil prices could remain subdued due to a combination of ample supply and restrained demand.
Geopolitical Tensions in the Middle East: Escalating conflict between Israel and Iranian-backed forces could disrupt oil supplies if it spreads to critical areas like the Persian Gulf or Straits of Hormuz. Such disruptions could spark sharp price spikes due to potential threats to Iran’s oil production or logistical chokepoints. Any intensification of hostilities would heighten supply fears, driving oil prices upward amid increased volatility.
Growing Renewables and EVs Threaten Oil Demand: The global shift to renewable energy and electric vehicles (EVs) presents a long-term challenge for oil demand. While renewable infrastructure growth is gradual, advancing technology and rising EV use are expected to reduce reliance on fossil fuels, potentially lowering oil prices. In China, rapid electrification is driving oil demand to peak earlier, with imports at 11.4 million barrels per day in 2023 projected to plateau by 2026 and then decline, furthering the global supply surplus and pressuring prices downward.
Zacks Industry Rank Indicates Bearish Outlook
The Zacks Oil and Gas - US E&P industry is a 32-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #237, which places it in the bottom 6% 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 challenging near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is a result of a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are becoming pessimistic about this group’s earnings growth potential. While the industry’s earnings estimates for 2024 have gone down 27.7% in the past year, the same for 2025 have fallen 26.5% over the same timeframe.
Despite the dim near-term prospects of the industry, we will present a few stocks that you may want to consider for your portfolio. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Underperforms S&P 500 & Sector
The Zacks Oil and Gas - US E&P industry has fared worse than the Zacks S&P 500 composite as well as the broader Zacks Oil – Energy sector over the past year.
The industry has moved down 1.8% over this period compared with the broader sector’s increase of 5.3%. Meanwhile, the S&P 500 has gained 32.2%.
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. For capital-intensive companies, EV/EBITDA is a better valuation metric because it is not influenced by changing capital structures and ignores the effect of noncash expenses.
On the basis of the trailing 12-month enterprise value-to-EBITDA (EV/EBITDA), the industry is currently trading at 5.99X, significantly lower than the S&P 500’s 17.30X. It is, however, above the sector’s trailing 12-month EV/EBITDA of 3.35X.
Over the past five years, the industry has traded as high as 10.81X, as low as 3.29X, with a median of 5.99X.
Trailing 12-Month Enterprise Value-to EBITDA (EV/EBITDA) Ratio (Past Five Years)
4 Stocks to Consider
Civitas Resources: Based in Denver, Civitas Resources focuses on the DJ Basin in Colorado and the Permian Basin across Texas and New Mexico. With strong well returns and a valuable midstream component, Civitas is positioned for growth. The company has become a leading consolidator in the DJ Basin and offers substantial returns to shareholders, with a balanced production mix of 37% oil, 34% NGLs, and 29% natural gas.
The 2024 Zacks Consensus Estimate for Civitas Resources indicates 53.1% year-over-year revenue growth. With a Zacks Rank #3 (Hold), the oil and natural gas producer has a market capitalization of $5 billion. CIVI’s shares have lost 20.7% in a year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: CIVI
Northern Oil and Gas: Northern Oil and Gas’ core operations are focused on three leading basins of the United States — the Williston, Permian and the Appalachian. The upstream operator employs a unique nonoperating business model, which helps it to keep costs down and increase free cash flow.
Carrying a Zacks Rank #3, the 2024 Zacks Consensus Estimate for NOG indicates 18.3% year-over-year revenue growth. Northern Oil and Gas delivered a trailing four-quarter earnings surprise of roughly 13% on average. The company’s shares have gone up 15.1% in a year.
Price and Consensus: NOG
California Resources: It is a California-based independent oil producer with a strong focus on conventional, shallow oilfields, producing around 60% oil. Alongside its core E&P operations, CRC is expanding into carbon capture and storage. The company actively partners with CO2 emitters to permanently sequester CO2 in its depleted reservoirs, positioning itself as both an energy and carbon management leader in the state.
California Resources’ expected EPS growth rate for three to five years is currently 11.8%, which compares favorably with the industry's growth rate of 8.3%. CRC delivered a trailing four-quarter earnings surprise of roughly 13.1% on average. The Zacks Rank #3 (Hold) company’s shares have gained 13.4% in a year.
Price and Consensus: CRC
Amplify Energy: The Houston, TX-based operator has a strong presence in Oklahoma, Southern California and Texas, and has stakes such as Bairoil in the Rocky Mountains. Amplify Energy’s diversified operations — spread over five U.S. basins — mitigates pricing and operational disruptions, while its long-life, long-production assets generate sustainable cash flows.
The 2024 Zacks Consensus Estimate for Amplify Energy indicates 3.1% year-over-year revenue growth. With a Zacks Rank of 3, the oil and natural gas producer has a market capitalization of $267.5 million. AMPY’s shares have increased 19.6% in a year.
Price and Consensus: AMPY