ConocoPhillips COP shares have risen 13.7% in the past six months, a modest increase compared to its energy-sector peers, including Exxon Mobil Corporation XOM and Chevron Corporation CVX. The sector has gained 21% over the past six months compared with an increase of 42.9% for XOM and 18.1% for CVX.
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ConocoPhillips is a prominent name in the exploration and production sector. The company boasts a strong asset base in the premier shale basins of the United States, including the Delaware Basin, Midland Basin, Eagle Ford and Bakken shale. COP highlighted that it has a durable and diverse portfolio of assets that should support its production growth for decades. It should be noted that since ConocoPhillips is primarily involved in the upstream sector, its business is vulnerable to the volatility in crude prices.
So, before offering anyinvestment advice it would be wise to look closely at the company’s fundamentals.
Vulnerability to Crude Prices
In its latestearnings call COP has mentioned that 2026 might be a “tougher year” for commodity prices. ConocoPhillips’ business is highly vulnerable to crude prices, and unfavorable commodity prices are likely to hurt its earnings and cash flows.
According to the U.S. Energy Information Administration (“EIA”), the price of West Texas Intermediate (“WTI”) crude is expected to average $53.42 per barrel in 2026, down from $65.40 per barrel in 2025. The supply-demand imbalance in the oil market, caused by OPEC+ production increases and potentially higher supply from Venezuela, hurts crude prices and could lead to a tougher economic outlook for ConocoPhillips. Thus, the current oil price environment does not seem to benefit COP, even though it has a strong portfolio of assets.
Image Source: U.S. Energy Information Administration
COP’s High Pre-Productive Capital Expenditures
ConocoPhillips has reduced its capital spending compared to 2025. However, the company still needs to make significant pre-productive capital expenditures before its Willow project comes online. The project is currently 50% complete and is expected to achieve first oil in 2029. It is expected to generate significant incremental cash flows for ConocoPhillips. COP still needs to spend heavily in order to complete the construction of the project and start production.
The prevailing softness in crude prices may affect the company’s earnings and cash flows in the near term. Given the ongoing pre-productive capital commitments toward Willow, lower oil prices could temporarily shrink its free cash flows and limit financial flexibility.
Time to Wait or Exit?
The current commodity price environment does not look favorable for upstream energy players like ConocoPhillips. The weakness in crude prices could impact its earnings and cash flows, and limit its ability to maintain shareholder returns. In fact, the company highlighted that in case there was a quarter where its cash flow dips, COP would rely on its balance sheet to fund shareholder returns. Given the company’s significant capital commitments, a fall in cash flows may potentially increase reliance on its balance sheet.
COP’s current valuation indicates that the stock may be slightly overvalued, at a trailing 12-month enterprise value to EBITDA (EV/EBITDA) of 5.85X, above the broader industry average of 5.77X. Chevron and ExxonMobil currently trade at a trailing 12-month EV/EBITDA of 9.52X and 9.78X, respectively.
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Given the stock’s near-term risks, investors should avoid owning the stock at present. COP currently has a Zacks Rank #4 (Sell).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
