3 Integrated Energy Stocks to Watch as Industry Faces Uncertainty

Core Viewpoint - Rising oil prices are negatively impacting the refining business due to increased input costs, while a slowdown in oil production growth is expected to reduce profits from upstream operations. The growing demand for renewable energy adds uncertainty to the future of the Zacks Oil & Gas US Integrated industry [1] Industry Overview - The Zacks Oil & Gas US Integrated industry includes companies involved in upstream and midstream energy businesses, focusing on oil and natural gas exploration and production, as well as transportation and storage [2] Trends Shaping the Industry - Refining Business Cost Pressures: With oil prices around $70 per barrel, integrated energy companies face significant pressure on refining operations due to higher crude oil costs, which challenge profitability [3] - Slowdown in Production Growth: A slowdown in oil production growth is driven by shareholder demands for capital returns rather than production expansion, leading to decreased output and revenues for upstream operations [4] - Growing Demand for Renewables: Increased emphasis on renewable energy is expected to reduce demand for fossil fuel products, negatively impacting integrated energy firms focused on oil and gas [5] Industry Performance and Valuation - Zacks Industry Rank: The Zacks Oil & Gas US Integrated industry ranks 209, placing it in the bottom 16% of over 250 Zacks industries, indicating dull near-term prospects [6] - Market Performance: The industry has underperformed the broader Zacks Oil - Energy sector and the S&P 500, declining 9.2% over the past year compared to the sector's growth of 6.6% and the S&P 500's increase of 39.2% [6] - Current Valuation: The industry is trading at an EV/EBITDA ratio of 4.61X, lower than the S&P 500's 19.51X but higher than the sector's 3.37X [7] Companies to Watch - Berry Corporation (BRY): Engaged in exploration and production with operations in low-decline oil and gas reserves, BRY has a strong liquidity position and a solid balance sheet [9] - Cactus Inc. (WHD): Benefits from high crude prices as it sells or rents products for drilling and completing onshore unconventional wells, while focusing on minimizing environmental impact [10] - Epsilon Energy Ltd. (EPSN): Focused on oil and natural gas exploration and production, with a strong presence in prolific U.S. resources like the Permian and Marcellus shale plays [11]