While it seems like the worst is over for the oil patch, the halcyon days of $100 a barrel oil are in the rear-view mirror, and they probably stay there for years. That said, energy demand is increasing, and production is falling, and falling fast. In a new sector initiation, the analysts at Cowen start coverage of exploration and production (E&P) stocks with an eye toward $70 barrel oil starting in 2017 and beyond.

While the Cowen team sees near-term prices hovering between $50 and $65 for the next two years, they also see tremendous opportunity. With the potential for the export ban to be finally lifted, six stocks stand out at Cowen, and these three are the firm’s top picks: Anadarko Petroleum Corp. (NYSE: APC), Pioneer Natural Resources Co. (NYSE: PXD) and Range Resources Inc. (NYSE: RRC). All are rated Outperform.

Anadarko Petroleum

Anadarko Petroleum is not only a top stock to buy at Cowen, but some think the stock is a very possible acquisition target. The company is one of the biggest independent oil and gas producers in the country, with exploration or production work in all major domestic drilling areas, as well as in South America, Africa, Asia and New Zealand.

Some Wall Street analysts feel that with the resolution of Tronox liabilities and the resulting tax adjustments, they expect the Wall Street focus may shift back to the positive underlying operating trends and the potential for further monetization and sell-down of major assets this year. They also think the company could come in higher than current consensus estimates.

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The Cowen team sees the company growing at or above 15% total production from the higher margin portions of its portfolio, which in turn could end up boosting the firm’s West Texas Intermediate (WTI) price realizations. In other words, more oil equals more money.

Anadarko investors are paid a 1.15% dividend. The Cowen price target is an aggressive $119. The Thomson/First Call consensus estimate is at $100.03. Shares closed Tuesday at $93.66. Earnings will be reported on May 4.
Pioneer Natural Resources

This stock was the ultimate shale-oil growth story for the past five years and was eviscerated in the sell-off, but it has bounced back strong. Pioneer is a huge player in the Permian basin and the Eagle Ford in Texas, and the company owns more than 20,000 locations in the world’s second largest oil reservoir in the Midland Basin. In addition, the company owns its own frac fleets, allowing Pioneer to be a low-cost, high-margin producer, which could prove to be huge with prices lower for a protracted period. Pioneer was also one of the firms named by the Commerce Department to produce and export condensate.

The Cowen analysts think plain and simple that this is a totally undervalued asset. They think the company can grow at a 10% compound annual growth rate at current strip pricing for the next 10 years. They also cite the company’s tremendous liquidity and great price hedges with 90% of 2015 production hedged at $73 and 60% of next year’s production at $71.

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Pioneer investors are paid a tiny 0.05% dividend. The Cowen price target is a massive $215, and the consensus target is $178.75. Pioneer closed trading on Tuesday at $172.18 a share.

Range Resources

Range Resources is a top stock to buy for possible gains in natural gas. The company holds interests in developed and undeveloped natural gas and oil leases in the Appalachian and Southwestern regions of the United States. The company owns 7,582 net producing wells and approximately 1.4 million net acres under lease in the Appalachian region; as well as 653 net producing wells and approximately 383,000 net acres under lease in the Midcontinent region.

The Cowen analysts feel the company is in the early stages of starting to manufacture in the Marcellus shale. They also see Range Resources as having the ability to grow 20% within cash flow. The analysts cite the company’s outstanding balance sheet, which they think is moving toward investment grade status as it has a net-debt to capital ratio of 33%, which is unique in the large-cap space.

Shares were walloped to the tune of almost 50% over the past year and have rallied nicely off of a double bottom print in March. Range Resources investors are paid a small 0.25% dividend. The Cowen target is $73, and the consensus target is $69.03. The stock closed Tuesday at $62.30.

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The Cowen analysts also started three other companies at Outperform: Devon Energy (NYSE: DVN) with an $80 price target, Noble Energy Inc. (NYSE: NBL) with a $63 price objective and Cimarex Energy Co. (NYSE: XEC) with a $154 price target.

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