We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
3 U.S. E&P Stocks That Look Well Placed for the Road Ahead
Read MoreHide Full Article
The Zacks Oil and Gas - Exploration and Production - United States industry is entering a constructive phase as stronger commodity fundamentals meet improving operating efficiency. Lean global oil inventories continue to support the pricing backdrop, while advances in drilling, longer laterals and automation are helping producers generate more output from each dollar spent. Natural gas is another bright spot, with LNG exports, power generation and data-center demand creating new growth avenues. Risks remain. Oil and gas prices can swing sharply, and higher service, fuel and equipment costs may pressure margins. Even so, improving earnings estimates and the industry’s favorable Zacks Industry Rank point to encouraging near-term prospects. Within the group, W&T Offshore (WTI - Free Report) , APA Corporation (APA - Free Report) and Diamondback Energy (FANG - Free Report) stand out, supported by solid production bases, disciplined capital spending, cost-control efforts and multiple avenues for longer-term growth.
About the Industry
The Zacks Oil and Gas - US E&P industry consists of companies primarily based in the domestic market 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 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, causing 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
Tight Global Inventories Support the Oil Price Outlook: Global crude and refined-product inventories remain relatively lean, creating a supportive backdrop for U.S. exploration and production companies. Oil drawn from storage eventually needs to be replaced unless demand weakens permanently. This restocking requirement could provide an underlying source of demand even when geopolitical headlines cause short-term price swings. A firmer oil-price environment generally improves drilling economics, supports reserve values and gives producers more confidence to maintain or selectively raise activity. Still, disciplined operators are likely to remain flexible, adjusting spending as commodity signals change.
Efficiency Gains Are Stretching Every Capital Dollar: U.S. producers are getting more output from fewer rigs and lower levels of sustaining capital as drilling, completion and field-management practices improve. Better well designs, longer laterals, faster drilling, automation and more efficient completion techniques are helping operators lower costs per unit of production. This matters because stronger capital efficiency can protect margins when service or fuel costs rise. It also allows producers to maintain production with less spending, freeing more cash for debt reduction, shareholder returns or selective growth. Continued technological improvements could further strengthen industry economics over time.
Natural Gas Demand Is Opening New Growth Channels: The outlook for U.S. natural gas is becoming broader as LNG exports, power generation and data-center development create additional sources of demand. Expanding pipeline capacity can also improve access from producing basins to Gulf Coast markets, reducing local transportation bottlenecks. For E&P companies with meaningful gas exposure, stronger connectivity could improve realized pricing and make associated gas production more valuable. Rising electricity needs from large computing facilities add another possible demand driver. Together, domestic power consumption and growing LNG infrastructure could provide a stronger long-term outlet for U.S. natural gas supply.
Cost Inflation and Commodity Volatility Remain Key Risks: The E&P industry remains highly sensitive to commodity prices, while operating and development costs can rise when drilling activity strengthens. Recent industry commentary points to pressure from fuel, casing, service costs, power and other consumables. If more rigs return to work, competition for equipment and labor could push costs higher, reducing the benefit of stronger oil and gas prices. Offshore producers also face sizable long-term decommissioning obligations. Efficiency improvements can offset part of these pressures, but a combination of weaker commodity prices and higher costs could quickly squeeze margins, cash flow and drilling returns.
Zacks Industry Rank Indicates Positive Outlook
The Zacks Oil and Gas - US E&P industry is a 33-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #95, which places it in the top 38% of 248 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.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of improving earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are becoming optimistic about this group’s earnings growth potential. As a matter of fact, the industry’s earnings estimates for 2026 have gone up 41.5% in the past year.
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 - US E&P industry has fared worse than the broader Zacks Oil - Energy Sector, though it has outperformed the Zacks S&P 500 composite over the past year.
The industry has moved up 22.8% over this period against the broader sector’s increase of 37.3%. Meanwhile, the S&P 500 has gained some 16.9%.
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 11.24X, lower than the S&P 500’s 17.68X. It is, however, well above the sector’s trailing 12-month EV/EBITDA of 6.06X.
Over the past five years, the industry has traded as high as 17.10X and as low as 3.42X, with a median of 6.08X.
Trailing 12-Month Enterprise Value-to EBITDA (EV/EBITDA) Ratio (Past Five Years)
3 Stocks to Focus On
W&T Offshore: W&T Offshore is an oil and gas producer focused on the Gulf of America, where it has operated for over four decades. The Zacks Rank #2 (Buy) company has built its business mainly through acquisitions of producing assets and drilling. Its portfolio spans 48 offshore fields, giving it exposure to both oil and natural gas across shallow-water and deepwater areas.
W&T aims to create value by lowering costs, extending field lives and increasing production from existing assets. It also pursues low-cost workovers, recompletions and acquisition opportunities as larger operators sell Gulf properties. Ownership of existing infrastructure can reduce development spending and speed up cash generation, while a project inventory provides options for future growth.
The Zacks Consensus Estimate for the company’s 2026 earnings per share indicates 75.7% year-over-year growth. Over the past 60 days, the Zacks Consensus Estimate for W&T Offshore’s 2026 loss has narrowed from 13 cents per share to 9 cents.
Price and Consensus: WTI
APA Corporation: APA Corporation is an oil and gas exploration and production company with operations in the United States, Egypt and the United Kingdom, alongside exploration interests in Suriname and other regions. Its core Permian and Egypt assets provide a steady cash-generating base, while management expects organic oil growth and continues working toward lower costs and debt.
The Zacks Rank #3 (Hold) company is also building its longer-term growth pipeline through exploration. Suriname’s GranMorgu development is expected to deliver first oil in mid-2028, with production capacity of 220,000 barrels per day. APA is also pursuing opportunities in Alaska and Uruguay, giving it several potential growth avenues beyond its established producing assets.
The Zacks Consensus Estimate for the company’s 2026 earnings per share indicates 51.2% year-over-year growth. Over the past 60 days, the Zacks Consensus Estimate for APA’s 2026 earnings has moved up from $5.14 per share to $5.70.
Price and Consensus: APA
Diamondback Energy: Diamondback Energy is a Permian Basin-focused oil and gas producer, with its operations centered on the Midland Basin. Its large footprint covers about 902,000 net acres and includes nearly 9,000 drilling locations considered economic at $50 oil. The #3 Ranked company combines this deep inventory with multi-zone development, long laterals and a low-cost operating structure to improve well productivity and returns.
Diamondback also places a strong focus on cash generation and shareholder returns. Its 2026 plan targets higher oil production while holding Midland Basin well costs near $550 per foot. An investment-grade balance sheet, base dividends and a sizable share-repurchase program add financial flexibility through commodity cycles.
The Zacks Consensus Estimate for the company’s 2026 earnings per share indicates 50.6% year-over-year growth. Over the past 60 days, the Zacks Consensus Estimate for Diamondback’s 2026 earnings has moved up from $19.25 per share to $20.14.
View the Zacks #1 Rank List
Image: Bigstock
3 U.S. E&P Stocks That Look Well Placed for the Road Ahead
The Zacks Oil and Gas - Exploration and Production - United States industry is entering a constructive phase as stronger commodity fundamentals meet improving operating efficiency. Lean global oil inventories continue to support the pricing backdrop, while advances in drilling, longer laterals and automation are helping producers generate more output from each dollar spent. Natural gas is another bright spot, with LNG exports, power generation and data-center demand creating new growth avenues. Risks remain. Oil and gas prices can swing sharply, and higher service, fuel and equipment costs may pressure margins. Even so, improving earnings estimates and the industry’s favorable Zacks Industry Rank point to encouraging near-term prospects. Within the group, W&T Offshore (WTI - Free Report) , APA Corporation (APA - Free Report) and Diamondback Energy (FANG - Free Report) stand out, supported by solid production bases, disciplined capital spending, cost-control efforts and multiple avenues for longer-term growth.
About the Industry
The Zacks Oil and Gas - US E&P industry consists of companies primarily based in the domestic market 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 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, causing 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
Tight Global Inventories Support the Oil Price Outlook: Global crude and refined-product inventories remain relatively lean, creating a supportive backdrop for U.S. exploration and production companies. Oil drawn from storage eventually needs to be replaced unless demand weakens permanently. This restocking requirement could provide an underlying source of demand even when geopolitical headlines cause short-term price swings. A firmer oil-price environment generally improves drilling economics, supports reserve values and gives producers more confidence to maintain or selectively raise activity. Still, disciplined operators are likely to remain flexible, adjusting spending as commodity signals change.
Efficiency Gains Are Stretching Every Capital Dollar: U.S. producers are getting more output from fewer rigs and lower levels of sustaining capital as drilling, completion and field-management practices improve. Better well designs, longer laterals, faster drilling, automation and more efficient completion techniques are helping operators lower costs per unit of production. This matters because stronger capital efficiency can protect margins when service or fuel costs rise. It also allows producers to maintain production with less spending, freeing more cash for debt reduction, shareholder returns or selective growth. Continued technological improvements could further strengthen industry economics over time.
Natural Gas Demand Is Opening New Growth Channels: The outlook for U.S. natural gas is becoming broader as LNG exports, power generation and data-center development create additional sources of demand. Expanding pipeline capacity can also improve access from producing basins to Gulf Coast markets, reducing local transportation bottlenecks. For E&P companies with meaningful gas exposure, stronger connectivity could improve realized pricing and make associated gas production more valuable. Rising electricity needs from large computing facilities add another possible demand driver. Together, domestic power consumption and growing LNG infrastructure could provide a stronger long-term outlet for U.S. natural gas supply.
Cost Inflation and Commodity Volatility Remain Key Risks: The E&P industry remains highly sensitive to commodity prices, while operating and development costs can rise when drilling activity strengthens. Recent industry commentary points to pressure from fuel, casing, service costs, power and other consumables. If more rigs return to work, competition for equipment and labor could push costs higher, reducing the benefit of stronger oil and gas prices. Offshore producers also face sizable long-term decommissioning obligations. Efficiency improvements can offset part of these pressures, but a combination of weaker commodity prices and higher costs could quickly squeeze margins, cash flow and drilling returns.
Zacks Industry Rank Indicates Positive Outlook
The Zacks Oil and Gas - US E&P industry is a 33-stock group within the broader Zacks Oil - Energy sector. The industry currently carries a Zacks Industry Rank #95, which places it in the top 38% of 248 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.
The industry’s position in the top 50% of the Zacks-ranked industries is a result of improving earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts are becoming optimistic about this group’s earnings growth potential. As a matter of fact, the industry’s earnings estimates for 2026 have gone up 41.5% in the past year.
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 - US E&P industry has fared worse than the broader Zacks Oil - Energy Sector, though it has outperformed the Zacks S&P 500 composite over the past year.
The industry has moved up 22.8% over this period against the broader sector’s increase of 37.3%. Meanwhile, the S&P 500 has gained some 16.9%.
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 11.24X, lower than the S&P 500’s 17.68X. It is, however, well above the sector’s trailing 12-month EV/EBITDA of 6.06X.
Over the past five years, the industry has traded as high as 17.10X and as low as 3.42X, with a median of 6.08X.
Trailing 12-Month Enterprise Value-to EBITDA (EV/EBITDA) Ratio (Past Five Years)
3 Stocks to Focus On
W&T Offshore: W&T Offshore is an oil and gas producer focused on the Gulf of America, where it has operated for over four decades. The Zacks Rank #2 (Buy) company has built its business mainly through acquisitions of producing assets and drilling. Its portfolio spans 48 offshore fields, giving it exposure to both oil and natural gas across shallow-water and deepwater areas.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
W&T aims to create value by lowering costs, extending field lives and increasing production from existing assets. It also pursues low-cost workovers, recompletions and acquisition opportunities as larger operators sell Gulf properties. Ownership of existing infrastructure can reduce development spending and speed up cash generation, while a project inventory provides options for future growth.
The Zacks Consensus Estimate for the company’s 2026 earnings per share indicates 75.7% year-over-year growth. Over the past 60 days, the Zacks Consensus Estimate for W&T Offshore’s 2026 loss has narrowed from 13 cents per share to 9 cents.
Price and Consensus: WTI
APA Corporation: APA Corporation is an oil and gas exploration and production company with operations in the United States, Egypt and the United Kingdom, alongside exploration interests in Suriname and other regions. Its core Permian and Egypt assets provide a steady cash-generating base, while management expects organic oil growth and continues working toward lower costs and debt.
The Zacks Rank #3 (Hold) company is also building its longer-term growth pipeline through exploration. Suriname’s GranMorgu development is expected to deliver first oil in mid-2028, with production capacity of 220,000 barrels per day. APA is also pursuing opportunities in Alaska and Uruguay, giving it several potential growth avenues beyond its established producing assets.
The Zacks Consensus Estimate for the company’s 2026 earnings per share indicates 51.2% year-over-year growth. Over the past 60 days, the Zacks Consensus Estimate for APA’s 2026 earnings has moved up from $5.14 per share to $5.70.
Price and Consensus: APA
Diamondback Energy: Diamondback Energy is a Permian Basin-focused oil and gas producer, with its operations centered on the Midland Basin. Its large footprint covers about 902,000 net acres and includes nearly 9,000 drilling locations considered economic at $50 oil. The #3 Ranked company combines this deep inventory with multi-zone development, long laterals and a low-cost operating structure to improve well productivity and returns.
Diamondback also places a strong focus on cash generation and shareholder returns. Its 2026 plan targets higher oil production while holding Midland Basin well costs near $550 per foot. An investment-grade balance sheet, base dividends and a sizable share-repurchase program add financial flexibility through commodity cycles.
The Zacks Consensus Estimate for the company’s 2026 earnings per share indicates 50.6% year-over-year growth. Over the past 60 days, the Zacks Consensus Estimate for Diamondback’s 2026 earnings has moved up from $19.25 per share to $20.14.
Price and Consensus: FANG