The price of crude oil hasn't been doing much, but that has been no impediment for big, diversified energy companies.
Once dismissed as unwieldy conglomerates, integrated companies such as Chevron Corp. and Exxon Mobil Corp. are gaining respect these days as investors recognize their ability to benefit from a shifting energy landscape.
Chevron's share price hit a record high of $120 (U.S.) last week, even as oil has drifted between $80 and $100 a barrel for most of the past three years.
The price of oil is down 35 per cent from its record high in 2008, but Chevron's share price is up 28 per cent over this same period, demonstrating a remarkable resilience to the underlying commodity.
Oil's drift has shattered bold forecasts that rising Chinese consumption and a healing global economy would keep prices firmly in the triple digits.
In Canada, the impact has been particularly nasty on energy producers, who are also wrestling with rising production costs and an uncertain U.S. market, where domestic production is on the rise partly because of hydraulic fracturing, or fracking.
Energy stocks within the S&P/TSX composite index have moved sideways for 3 1/2 years.
But U.S. integrated energy companies not only produce oil – they also refine it into fuel. And refining is on the upswing thanks to lower input costs, mostly oil and natural gas.
In other words, integrated oil companies have a natural hedge against fluctuating oil prices. In the fourth quarter of 2012, Exxon's earnings received a $1.2-billion boost from stronger refining margins alone.
Lower oil prices bring another benefit to integrated energy companies. They make acquisitions less expensive, since oil producers tend to slump with declining oil prices – and that helps diversified mega-companies expand their energy reserves on the cheap.
Of course, integrated energy companies have one knock against them: They are not exactly unknowns.
Their rising share prices have attracted a lot of money, as investors look to benefit from an emerging trend. According to Lipper, U.S. energy funds have seen net inflows of $2-billion (U.S.) this year, following last year's near-record-high inflow of $4.3-billion into the sector.
That can be a problem if tastes change and money starts flowing out.
But there is a fine reason to believe that integrated energy companies will see good days ahead: The backdrop is far from frothy.
The global economic recovery is by no means certain, and this uncertainty is acting as a brake on energy-stock enthusiasm. Europe is still in recession, China's economic growth is down from its glory days and the U.S. economy is struggling.
Valuations are also reasonable. Stocks in the S&P 500 integrated oil and gas index trade at 10.8-times earnings, which is slightly below the 10-year average for the group and about 30 per cent below the current price-to-earnings ratio for the broader S&P 500.
Lastly, crude oil is not acting as a draw. Range-bound and stuck below $100 a barrel, oil is hardly the source of excitement right now and it is keeping investor exuberance for the energy sector at bay.
But if oil prices recover? Well, that's good too.