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Iran-Israel Conflict Escalates: Boon for ExxonMobil's E&P Business?

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Key Takeaways

  • XOM's upstream business benefits as oil prices near $75 amid rising Iran-Israel tensions.
  • ExxonMobil revised expected synergies from its Pioneer deal up to $3B annually for the next decade.
  • XOM's strong Permian presence and high crude prices are driving significant cash flow growth.

The West Texas Intermediate crude price is currently nearing the $75-per-barrel benchmark, representing a significant improvement from $60.79 on May 30, thanks to the escalating tensions between Iran and Israel. This is a boon for Exxon Mobil Corporation’s (XOM - Free Report) exploration and production (E&P) activities, as upstream operations are positively correlated with oil prices. Crude price data are as per Oilprice.com.

In other words, with ExxonMobil generating the majority of its earnings from upstream operations, almost 88% in the first quarter of 2025, the rise in oil price is a positive development for its E&P business, aiding its bottom line. Delving into the large integrated energy player’s upstream business, XOM has a strong footprint in the oil-rich Permian, the most prolific basin in the United States. With operations spread across the low-cost basin, the high oil price will likely generate significant cash flows for XOM. 

To describe XOM’s strong focus on the Permian, the energy giant acquired Pioneer Natural Resources, with integration progressing well, and the company has revised its annual synergy estimates upward from $2 billion to $3 billion for the first decade. Thus, strong Permian operations amid the favorable crude pricing environment are aiding ExxonMobil.

Are CVX & BP Also Gaining From High Oil Prices?

Both Chevron Corporation (CVX - Free Report) and BP plc (BP - Free Report) generate significant earnings from their upstream operations, and hence, they benefit from higher oil prices.

In the Permian, Chevron’s operations cover approximately 1.8 million net acres within the sub-basins of Delaware and Midland. Being a major player in the region, CVX’s breakeven costs are also low. Hence, it can generate handsome cashflow from a high crude pricing environment. In the first quarter of this year, CVX mentioned that Permian primarily aided its production volumes.

BP also has a solid upstream operation, comprising a top-tier oil and gas business in attractive basins. BP is also a low-cost producer. The British energy giant claimed that it has been able to keep the cost of producing oil very low. Thus, BP is among the lowest-cost producers in the industry to capitalize on increasing oil prices.

XOM’s Price Performance, Valuation & Estimates

Shares of XOM have gained 7.9% over the past year, outpacing the 3.7% improvement of the composite stocks belonging to the industry.

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From a valuation standpoint, XOM trades at a trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 7.06X. This is above the broader industry average of 4.26X.

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The Zacks Consensus Estimate for XOM’s 2025 earnings hasn’t been revised over the past seven days.

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XOM stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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