U.S. Energy Sector Momentum: Rig Count Stability and E&P Stock Valuations in 2025

The U.S. energy sector is navigating a complex landscape in 2025, where rig count stability masks a tug-of-war between renewed drilling activity and persistent operational headwinds. For investors, understanding how these dynamics shape exploration and production (E&P) stock valuations requires a nuanced analysis of cost structures, efficiency gains, and macroeconomic signals.

Rig Count Trends: A Mixed Signal

The latest U.S. rig count data reveals a modest but meaningful uptick in oil-focused drilling. This four-week consecutive increase contrasts with the Dallas Fed Q3 survey, which noted a negative business activity index of -6.5, reflecting elevated uncertainty and cost pressures. As of September 26, 2025, the total rig count stood at 549, with oil rigs rising to 424-the highest since July 2025, a RigZone report said. The apparent contradiction underscores a strategic shift: operators are prioritizing efficiency over aggressive expansion. For instance, companies are extending well lengths and adopting advanced completion techniques to maximize output from existing acreage, even as they reduce the number of active rigs, according to a Wood Mackenzie analysis.

Natural gas drilling, meanwhile, remains under pressure. Gas rigs declined to 117 in Q3 2025, the lowest since July, despite growing U.S. LNG export demand, as RigZone reported earlier. This divergence highlights the sector's asymmetry: oil producers are cautiously ramping up activity in response to stable prices, while gas operators grapple with oversupply and low margins.

Cost Pressures and Capital Discipline

High operating costs continue to weigh on E&P valuations. The Dallas Fed survey reported a sharp rise in finding and development costs for exploration and production (E&P) firms, climbing from 11.4 to 22.0 in Q3 2025. Equipment utilization for oilfield services firms also fell to -13.0, signaling underused capacity and compressed margins. These challenges are compounded by supply chain delays and regulatory uncertainty, particularly in key states like Texas and New Mexico, where drilling activity dipped slightly in Q3, as a World Oil report described.

However, operators are mitigating these pressures through capital discipline. Mergers and acquisitions (M&A) have become a cornerstone strategy. Chevron's $53 billion acquisition of Hess Corporation, for example, exemplifies how consolidation can optimize production and reduce per-unit costs. Similarly, independent E&P firms are focusing on inventory optimization rather than new drilling, a trend that has kept capital expenditures flat in 2025 compared to 2024, according to a Baker Hughes note.

Valuation Implications: Efficiency Over Expansion

The interplay of rig count stability and cost management is reshaping E&P stock valuations. Analysts note that companies demonstrating strong operational efficiency-such as those leveraging simul-frac technology to reduce idle time-are outperforming peers, based on the Wood Mackenzie analysis cited above. For instance, well costs have fallen by approximately 10% in 2024 due to lower input prices for materials like proppant and diesel, though these savings have not fully offset pre-pandemic cost levels.

Valuation metrics like P/E ratios and EV/EBITDA are also influenced by capital discipline. Firms like Chevron, which have integrated M&A into their growth strategies, are better positioned to deliver shareholder returns through dividends and buybacks, while companies reliant on high-risk, high-cost projects face valuation headwinds as investors demand higher returns for increased volatility.

Outlook: A Sector in Transition

Looking ahead, the U.S. E&P sector is poised for a measured recovery. Analysts project that rig counts will remain stable or see modest growth in 2025, particularly in core basins like the Permian, where tier 1 acreage is maturing, according to the Dallas Fed survey. Innovations in refracturing and enhanced oil recovery could unlock value in tier 2 and tier 3 assets, improving capital returns.

Regulatory developments under the Trump administration, including relaxed LNG export restrictions and expanded leasing, may further bolster the sector, although the long lead times for offshore and international projects suggest that a "drill, baby, drill" approach will not immediately translate to higher production.

For investors, the key takeaway is clear: E&P valuations in 2025 will be driven by companies that balance efficiency with strategic growth. As global energy demand remains resilient and infrastructure projects like the Matterhorn Express Pipeline alleviate bottlenecks, the sector's ability to adapt to cost and regulatory challenges will determine its long-term appeal.