There was never any doubt that it would happen, because it always does. Despite pledges from OPEC countries to lower production, OPEC’s compliance with production cuts fell in June to its lowest levels in six months as several members pumped much more oil than allowed by their supply deal, thus delaying market rebalancing, according to data from the International Energy Agency (IEA). This in turn has pushed the price under the psychological $50 level and has kept it there for a while.

The question for investors is what companies are attractive now given the lower for longer scenario, which could be in place through 2017 and well into 2018 and beyond. In a new research report from J.P. Morgan, while they lower their oil price deck levels for Brent crude for the next two and a half years they do stay very positive on three top large cap picks. All three are rated Overweight at the firm.

Chevron

This integrated giant is a safer way for investors looking to stay or get long the energy sector, and it has big Permian Basin exposure. Chevron Corp. (NYSE: CVX) is a U.S.-based integrated oil and gas company with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals.

The company sports a sizable dividend and has a solid place in the sector when it comes to natural gas and liquefied natural gas (LNG). Some on Wall Street estimate the company will have a compound annual growth rate of over 5% for the next five years.

The company reported solid earnings for the first quarter, and the Jefferies analysts have noted that the Permian Basin remains a key source of capital flexibility, and it is a key issue behind their relative preference for Chevron versus some of the other majors. JPMorgan noted this in its report:

Chevron is positioned to show healthy cash flow improvement with cash flow from operating activities (CFO) ramping (Gorgon/Wheatstone projects and fewer transitory headwinds) and capex coming down. As a result, the company’s sustaining breakeven dividend coverage should go from $55 per barrel in 2017 to $50 per barrel in 2018 and its balance sheet is ~1.6x net debt/CFO at $50/bbl in 2018.

Chevron shareholders receive an outstanding 4.16% dividend. The JPMorgan price target for the stock is $112, and the Wall Street consensus price objective is $119.50. Shares closed Wednesday at $103.89.

ConocoPhillips

This stock may offer investors solid upside potential and the company could start growing the dividends again. ConocoPhillips (NYSE: COP) explores for, produces, transports and markets crude oil, bitumen, natural gas, LNG and natural gas liquids (NGLs) worldwide.

Conoco’s portfolio includes resource-rich North American tight oil and oil sands assets; lower-risk legacy assets in North America, Europe, Asia and Australia; various international developments; and an inventory of conventional and unconventional exploration prospects. Many Wall Street analysts feel the company can accelerate growth from a reloaded portfolio depth in the Bakken and Eagle Ford, and with visibility on future growth from a sizable position in the Permian.

Conoco has redefined its investment case with the highest free cash leverage to a recovery in oil prices among the big oil plays. Management has addressed key questions around portfolio resilience: maintenance capital expenditures have dropped to $4.5 billion and share buybacks have been prioritized over growth. The report noted:

ConocoPhillips has significantly improved its balance sheet (2018 ~1.7 x net debt/CFO at $50/bbl Brent) and is committed to returning $6 billion via buybacks through 2019 in most realistic pricing scenarios.

Investors receive a 2.45% dividend. JPMorgan has a $48 price target, but the consensus target is much higher at $56.74. Shares closed most recently at $43.24.

Canadian Natural Resources

This top Canadian play is JPMorgan’s top pick, based on a free-cash-flow yield basis. Canadian Natural Resources Ltd. (NYSE: CNQ) acquires, explores for, develops, produces, markets and sells crude oil, natural gas and NGLs. The company operates primarily in Western Canada; the U.K. sector of the North Sea; and Côte d’Ivoire, Gabon and South Africa in offshore Africa.

The company offers light and medium crude oil, primary heavy crude oil, Pelican Lake heavy crude oil, bitumen and synthetic crude oil (SCO). Its midstream assets include three crude oil pipeline systems and a 50% working interest in an 84-megawatt cogeneration plant at Primrose.

JPMorgan feels that the company’s metrics remain among the best in its research universe. The report said:

The company can cover sustaining capital and dividends at $40 per barrel with an improving balance sheet (2018 estimated ~3.1x net debt/CFO at $50 per barrel Brent), levers to pull if required, and a good mix of growth/return of capital.

Shareholders receive a solid 2.9% dividend. The $41 JPMorgan price target compares with the consensus target of $38.02. Shares closed trading on Wednesday at $29.31.

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The bottom line is that despite the lower compliance levels, demand for oil has increased and the numbers for this year actually have moved higher. The IEA said that global oil demand growth saw dramatic acceleration in the second quarter, and it revised 2017 growth forecasts up by 100,000 barrels per day to 1.4 million. So it makes sense to stay in the energy game with well-positioned majors like these three top companies.

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