A Closer Look at the U.S. Upstream Oil & Gas Industry

Core Industry Insights - The Zacks Oil and Gas - Exploration and Production - United States industry is facing increasing challenges, including potential U.S. policy changes that may boost domestic oil production, leading to higher supply and lower prices [1] - China's slowing oil demand, despite government stimulus, could further weaken global prices, particularly if OPEC+ production cuts do not sufficiently address the demand shortfall [1][4] - The rise of renewable energy and electric vehicle adoption is expected to challenge long-term oil consumption, with China projected to see its oil imports peak earlier than anticipated [1][6] - Geopolitical tensions in the Middle East could lead to rapid price increases if conflicts disrupt critical supply routes [1][5] Industry Overview - The Zacks Oil and Gas - US E&P industry comprises companies focused on the exploration and production of oil and natural gas, with cash flow heavily influenced by commodity prices [2] - The industry is characterized by historically volatile prices, which significantly impact production growth rates and returns [2] Key Trends - Potential Increase in U.S. Oil Production: A Republican-led administration may implement policies to increase hydrocarbon production, potentially leading to a significant rise in U.S. oil output and downward pressure on prices [3] - Impact of Weakening Chinese Consumption: Slower demand growth from China could keep global oil prices subdued due to ample supply and restrained demand [4] - Growing Renewables and EVs Threaten Oil Demand: The shift towards renewable energy and electric vehicles is expected to reduce reliance on fossil fuels, with China's oil imports projected to plateau by 2026 [6] Industry Performance - The Zacks Oil and Gas - US E&P industry currently ranks 237, placing it in the bottom 6% of over 250 Zacks industries, indicating challenging near-term prospects [7][8] - The industry's earnings estimates for 2024 have decreased by 27.7% over the past year, with 2025 estimates down 26.5% [9] - The industry has underperformed compared to the S&P 500 and the broader Zacks Oil – Energy sector, declining by 1.8% over the past year while the S&P 500 gained 32.2% [11] Valuation Metrics - The industry is currently trading at an EV/EBITDA ratio of 5.99X, significantly lower than the S&P 500's 17.30X but above the sector's 3.35X [13] Notable Companies - Civitas Resources: Focused on the DJ Basin and Permian Basin, with a balanced production mix and projected 53.1% revenue growth for 2024 [14][15] - Northern Oil and Gas: Operates in key U.S. basins with a unique nonoperating model, indicating 18.3% revenue growth for 2024 [18][19] - California Resources: Independent producer with a focus on carbon capture, expected EPS growth rate of 11.8% over three to five years [20][21] - Amplify Energy: Diversified operations across five U.S. basins, with a projected 3.1% revenue growth for 2024 [23][24]