The Zacks Oil and Gas - Exploration and Production - International industry remains well-positioned as strong commodity prices and supply constraints continue to support earnings. Companies operating outside the United States are benefiting directly from higher realizations, which are boosting cash flows and improving balance sheets. At the same time, a clear shift toward capital discipline and cost efficiency is helping operators lower break-even levels and focus on high-return projects. Portfolio reshaping and geographic repositioning are further strengthening cash flow quality and long-term resilience. Though there are challenges, including natural field declines and ongoing reinvestment needs, the broader setup looks constructive. The industry’s solid ranking, strong relative performance versus the S&P 500, and attractive valuation suggest room for further upside. As companies continue to refine portfolios and improve execution, the outlook remains encouraging. Within this space, Harbour Energy (HBRIY Quick QuoteHBRIY - Free Report) , Vermilion Energy (VET Quick QuoteVET - Free Report) and Kosmos Energy (KOS Quick QuoteKOS - Free Report) stand out as compelling names to watch.

Industry Overview

The Zacks Oil and Gas - International E&P industry consists of companies primarily operating outside the United States and 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 determined by realized commodity prices. In fact, all E&P companies are vulnerable to historically volatile prices in the energy markets. A change in realizations affects their returns on drilling inventory and causes them to alter production growth rates. These operators are also exposed to exploration risks where drilling results are uncertain.

4 Key Investing Trends to Watch in the Oil and Gas - International E&P Industry

Commodity Price Gains: The sharp rise in crude prices following supply disruptions in the Middle East creates a strong macro tailwind for the global oil and gas exploration and production space. When benchmark prices move from the $60 range to near or above $100, upstream players typically see a direct and meaningful improvement in realizations and cash flows. This kind of pricing environment not only boosts near-term profitability but also strengthens balance sheets, enabling higher reinvestment into exploration and development activities. At the same time, supply constraints tied to key chokepoints like the Strait of Hormuz highlight the structural importance of diversified production sources, which further support sustained demand for international upstream output. Overall, elevated prices combined with tighter supply conditions create a favorable backdrop for earnings visibility and capital discipline across the industry.

Improving Cost Structures and Capital Discipline: Companies are steadily reshaping portfolios toward lower-cost, higher-return assets while exiting mature or expensive operations. This shift, combined with tighter capital allocation and efficiency gains, is driving down unit costs and improving margins. Production growth is increasingly tied to high-return projects with quick paybacks, helping sustain cash flows even in uncertain price environments. Over time, this disciplined approach enhances resilience, supports debt reduction, and allows firms to better navigate commodity cycles while still investing in future growth.

Declining Legacy Assets and High Reinvestment Needs: Many portfolios still include aging fields with natural decline rates, requiring continuous drilling and capital spending just to maintain production levels. At the same time, newer projects often demand significant upfront investment and longer development timelines. This creates a balancing act between funding growth and preserving balance sheet strength. If capital discipline weakens or project execution falters, returns can suffer. Additionally, shifting capital away from higher-cost regions may reduce diversification and expose companies more to specific basin risks.

Portfolio High-Grading and Geographic Repositioning: Companies are actively reshaping their asset mix by divesting higher-cost, mature operations and reallocating capital toward more competitive regions with better fiscal terms and stronger margins. This shift is not just about reducing costs—it’s about improving the overall quality of cash flows. By concentrating on assets with longer life, lower taxes, and better operating control, firms are building portfolios that can generate steadier and more predictable returns. In many cases, production from legacy regions is being replaced with output from newer, higher-margin basins, which enhances profitability even if total volumes remain stable. Over time, this repositioning supports stronger free cash flow generation, lowers break-even levels, and gives companies greater flexibility to navigate commodity cycles while still funding growth initiatives.

Zacks Industry Rank Reflects Positive Outlook

The Zacks Oil and Gas – International E&P industry is a six-stock group within the broader Zacks Oil - Energy sector. It currently carries a Zacks Industry Rank #44, which places it in the top 18% of 243 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates fairly strong 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.

Considering the encouraging dynamics 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 Outperforms S&P 500 but Lags Sector

The Zacks Oil and Gas - International E&P industry has fared better than the Zacks S&P 500 composite, though it has underperformed the broader Zacks Oil - Energy Sector over the past year.

The industry has gone up 27.5% over this period compared with the broader sector’s increase of nearly 32%. The S&P 500 has gained 20%.

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 non-cash expenses.

On the basis of the trailing 12-month enterprise value-to EBITDA (EV/EBITDA), the industry is currently trading at 5.95X, significantly lower than the S&P 500’s 17.34X. It is also below the sector’s trailing 12-month EV/EBITDA of 7.14X.

Over the past five years, the industry has traded as high as 9.60X, as low as 2.33X, with a median of 4.17X.

Trailing 12-Month Enterprise Value-to EBITDA (EV/EBITDA) Ratio (Past Five Years)

 

3 Oil and Gas - International E&P Stocks to Watch

Vermilion Energy: Vermilion Energy is a globally diversified producer with core assets in Canada’s Deep Basin and Montney, complemented by operations across Europe and Australia. This mix provides exposure to premium gas markets while keeping cash flows balanced and decline rates low. The Zacks Rank #1 (Strong Buy) company prioritizes steady production, sustainable free cash flow and disciplined capital use.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Recent updates highlight improving operations and a deep drilling inventory, though meaningful free cash flow growth is expected later in the decade. Canada now anchors production, supported by long-life assets and existing infrastructure, while European gas offers attractive economics and pricing upside. As leverage falls, Vermilion expects to increase buybacks and other return-of-capital measures over time.

The Zacks Consensus Estimate for 2026 earnings of the company indicates 268.4% growth. Vermilion Energy’s shares have gained more than 51% in a year.

Price and Consensus: VET

Harbour Energy: It is one of the largest independent oil and gas exploration and production companies listed in London. Formed through the merger of Chrysaor and Premier Oil, and later expanded with the acquisition of Wintershall Dea, the company produces around 460–500 thousand barrels of oil-equivalent per day. Harbour Energy’s operations span Norway, the U.K., Argentina, North Africa and Mexico, giving it a broad and balanced global presence.

The Zacks Rank #3 (Hold) company has grown through a series of acquisitions, supported by a focus on improving operations, reducing debt and returning cash to shareholders. Recent deals, including entry into the U.S. Gulf of Mexico, aim to strengthen cash flow and long-term growth. With strong scale now achieved, Harbour Energy is increasingly focused on improving returns and optimizing its portfolio.

The Zacks Consensus Estimate for 2026 earnings of the company indicates 287.5% growth. Harbour Energy’s shares are up 56.6% in a year.

Price and Consensus: HBRIY

Kosmos Energy: Kosmos Energy is a deepwater exploration and production company with a balanced portfolio of oil and natural gas assets across proven basins. Its operations span offshore Ghana, Equatorial Guinea and the U.S. Gulf of Mexico, complemented by world-scale gas developments offshore Mauritania and Senegal. The company pursues a mix of long-cycle gas projects, meeting rising global demand and shorter-cycle oil opportunities that generate strong returns at current prices.

With a stable production base and strategic partnerships, Zacks Rank #3 Kosmos emphasizes disciplined growth, balance sheet resilience and sustainable cash generation. Recent milestones, including first gas at its flagship LNG project, have positioned the business to deliver meaningful free cash flow for years ahead. By combining infrastructure-led exploration with phased project development, Kosmos seeks to minimize risk, optimize costs and advance value creation while supporting the broader energy transition.

The Zacks Consensus Estimate for 2026 earnings of the company indicates 46.6% growth. Kosmos Energy’s shares have edged up 2.2% in a year.

Price and Consensus: KOS