3 Stocks to Watch in Integrated Oil & Gas

The entire energy market has been on a wild ride as of late -- with the exception of Big Oil stocks. While the price of oil has been nearly halved over the past year, the hit to the share prices of the titans of the oil industry has been more limited. That is by design, of course, as integrated oil companies have built their business model to withstand the ups and downs of a commodity market by having assets spread through the production, refining, and marketing of oil and gas.

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Just because these companies can be expected to weather the storms relatively well doesn't mean they can be ignored at times like this. In fact, watching what Big Oil does can provide some valuable insight into the full industry's long-term trends. Here are three companies worth watching right now in the integrated oil and gas space.

ExxonMobil : For years, ExxonMobil has been the steady hand of the integrated oil and gas companies. When others ramped up spending while oil prices were high, Exxon's management has practiced temperance. At the same time, it rarely cuts its capital spending budgets simply due to low oil prices. While some investors with a shorter-term time horizon might become frustrated with this behavior, the company has proven itself to be one of the best investments over the long term.

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We have no idea where oil prices are headed over the next several years. However, there is comfort in knowing ExxonMobil is still generating enough cash from operations to cover all of its capital expenditures, as well as pay for most of its dividend, without taking on debt. The company's debt-to-capital ratio of 13% leaves plenty of wiggle room in the balance sheet to help work through these down times. This is a luxury few companies have at a time like this.

Why should you be watching ExxonMobil? Because if it makes significant changes to its current operations it probably means something significant is happening in the market. If Exxon makes a significant change to its capital spending plans, some sweeping changes are probably coming to the industry soon.

Chevron : Chevron has received some harsh criticism lately from analysts such as Goldman Sachs that believe the company will struggle in the next several quarters to lock in the cash flow needed to raise its dividend, and that its production growth plans for 2017 might not be attainable in today's market. While these things are likely to come to pass, there is cause to suspect that such analyst positions are a bit of an overreaction to today's market conditions.

Over the two-year time horizon at which Goldman is looking, Chevron has more than $15 billion in major capital projects that cannot simply be stopped due to undulations of oil prices. The vast majority of that capital is tied up in its two LNG facilities in Australia. Projects such as LNG liquefaction terminals involve immense amounts of up-front capital, but once up and running they can be strong cash flow contributors. Simply putting these facilities into operation will mean they are not eating up as much capital spending, and that will help cash flow.

Also, with a AA investment-grade credit rating and a net debt-to-EBITDA ratio of 0.65 times -- which means Chevron's net debt is only 65% of annual EBITDA -- the company has plenty of financial flexibility to pay for these projects without seriously limiting spending or the dividend.

The primary thing to watch with Chevron is how well it can complete these projects on time and on budget. It hasn't had the best reputationwith that at its Gorgon and Wheatstone LNG facilities thus far, and every extra dollar spent on these projects will eat into long-term profitability.

Total : Total's situation is similar to Chevron's. It has a number of projects under construction that it hopes to bring online in the next couple years. So far, those capital obligations have exceeded its operational cash flow, and that situation is likely made worse with oil prices where they are today. According to Total's most recent investor update, more than 55% of the company's capital employed in the upstream side of the business is in projects under development, which is killing free cash flow and returns.

That capital is tied up in about 1.1 million barrels per day of oil equivalent production, all of which management hopes to bring online by the end of 2017. Also, while the company isn't in as good of financial standing as Chevron, it has a decent amount of balance sheet flexibility with an AA- credit rating and a net debt-to-EBITDA ratio of 1.02 times.

As long as Total can keep these projects within their stated budgets, the company should be able to turn around its cash flow issues. Neither it nor Chevron can control what happens with oil and gas prices, and lower prices will certainly hamper profitability. However, when making investment decisions on these major capital projects, these companies cannot be overly concerned with the ups and downs of oil prices and need to focus more on the long-term demand for these commodities as their guide.

What a Fool believesJust like the managers of these oil majors, you and I cannot predict which way oil prices winds will blow at any given moment, and to invest based solely on oil prices is an exercise in futility. Investing in integrated oil and gas companies is a bet that they can create shareholder value through the highs and lows of the commodity cycle via dividends, share repurchases, and modest earnings growth.

To keep these things going, they all must invest through those cycles. ExxonMobil, Chevron, and Total all can survive these sorts of situations, but investors should watch their ability to move their capital projects along without blowing past budget estimates any more than they already have.

The article 3 Stocks to Watch in Integrated Oil & Gas originally appeared on Fool.com.

Tyler Crowe owns shares of ExxonMobil.You can follow himat Fool.comor on Twitter@TylerCroweFool.The Motley Fool recommends Chevron and Total (ADR). The Motley Fool owns shares of ExxonMobil. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.