Nobody said a 60% downturn in the price of oil would be easy to digest, and many thought a flood of bankruptcies could have been very possible. In a new and very comprehensive report, Baird marvels at the current sector ingenuity. Producers are quickly adapting to the price collapse by focusing on core acreage and the highest returning projects. Baird also thinks this is making companies better in the field and in the corporate front office.

The Baird analysts are not alone in their love of the Permian Basin, where some companies are adding back wells. Three stocks are now listed as the top picks, and one is actually a contrarian play as it resides in the Bakken formation, which is not a Wall Street favorite now. All three are rated Overweight at the firm.

Pioneer Natural Resources

The Baird analysts like this one as a pure crude oil play in the Permian Basin. Pioneer Natural Resources Co. (NYSE: PXD) was the ultimate shale-oil growth story for the past five years, and it was eviscerated in the sell-off. The stock has recently declined over 15% and also offers investors a better entry point.

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.

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Pioneer was also one of the firms named by the U.S. Department of Commerce to produce and export condensate. With a big secondary last November and more asset sales on tap, the company could have balance sheet debt close to zero this year.

Pioneer Natural Resources’ crude oil and natural gas production has increased over the past 13 quarters. From the first quarter of 2012 through last year total production increased 38%, from 13.5 to 18.5 million barrels of oil equivalent. Despite the quarter-over-quarter decline to start this year, crude oil and natural gas production in the first quarter of 2015 was still up 17% over the year-ago period.

Pioneer investors are paid a tiny 0.5% dividend. The Baird price target for the stock is $186, and the Thomson/First Call consensus target is lower at $182.81. Pioneer closed trading on Tuesday at $142.50 a share.
Carrizo Oil & Gas

This company is a top energy stock for value buyers to consider. Carrizo Oil & Gas Inc. (NASDAQ: CRZO) is a Houston-based energy company actively engaged in the exploration, development and production of oil and gas from resource plays located in the United States. Carrizo’s current operations are principally focused in proven, producing oil and gas plays primarily in the Eagle Ford Shale, the Utica Shale in Ohio, the Niobrara Formation in Colorado and the Marcellus Shale in Pennsylvania.

Many on Wall Street see the company as one of the best positioned due to the low breakeven costs, solid operating scale and a very good balance sheet with ample liquidity. The analysts also think they company may take advantage of difficult situations for others and make acquisitions, especially in the Eagle Ford.

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Some analysts sees as much as 13% oil growth next year, even if the company does not add a fourth rig in the Eagle Ford. Wall Street as a whole is also very positive that the firm’s capital expenditures will prove to be accretive. These are points that some on Wall Street may be missing.

The Baird price target is $61, while the consensus target is posted at $60.75. Shares closed Tuesday at $52.95 apiece.

Whiting Petroleum

This is North Dakota’s largest oil producer, and the Baird contrarian pick as it is located in the Bakken Shale. Whiting Petroleum Corp. (NYSE: WLL) is an independent oil and gas company that explores for, develops, acquires and produces crude oil, natural gas and natural gas liquids, primarily in the Rocky Mountain and Permian Basin regions of the United States. Its largest projects are in the Bakken and Three Forks plays in North Dakota, the Niobrara play in northeast Colorado and its Enhanced Oil Recovery field in Texas.

In March, the company put its Texas acreage and pipeline assets up for sale as an alternative to a sale of the full company. The new strategy may be an effort to appease some investors outraged by the possibility of any outright sale. Wall Street analysts feel that the company could dispose of assets that are not key to the core shale operations and generate cash for the company’s balance sheet. Whiting is burdened by more than $3 billion in debt after December’s buyout of smaller rival Kodiak Oil & Gas.

The Baird price target for this love it or hate it stock is $44, and the consensus is right in line at $44.11. The stock closed Tuesday at $35.75.

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The Baird team has the right idea by sticking with companies with solid well returns, good acreage and, for the most part, reasonably solid balance sheets. With the potential for oil to trade sideways for some time, these stocks make good sense for growth investors with patience.

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