Short of a major Mideast war, or the North Koreans actually hitting something, the prospects for oil to rebound to highs printed back in 2014 are highly unlikely. In fact, many think it could take until the middle of the next decade for per-barrel prices to lift back into the $70s. While the oil market has certainly improved from the lows of early 2016, it will remain a long process, and many feel that the larger international oil companies (IOCs) may be the best bet.

In a new Jefferies research report, the analysts feel that while there may be a small undersupply for the rest of the year, overall inventories are unlikely to return to the trailing five-year average, and the end of the OPEC production cuts could add additional pressure. They noted this in the report:

We believe the IOCs are breaking even at $50 per barrel(Brent) and we continue to have a clear preference for stocks offering either the highest free cash flow yields or the greatest inflection in near-term free cash flow. We continue to prioritize those stocks offering the highest 2018 estimated free cash flow yields, as well as the stocks offering the greatest swing in free cash flow generation over the coming 12-18 months.

Three top IOCs make the cut and are rated Buy at Jefferies. All make good sense for long-term growth and income accounts.

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. 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 second quarter, and 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. The analysts noted in their report:

Permian production is running ahead of guidance with implications on reducing sustaining capital for the broader portfolio. Major project starts, led by Gorgon continue to drive an inflection in free-cash-flow with the cash breakeven trending below $50 by 2018.

Shareholders receive a 4.01% dividend. The Jefferies price target for the shares is $130, and the Wall Street consensus target is $116.38. Shares closed trading on Tuesday at $107.86.

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, liquefied 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. In addition, ConocoPhillips has significantly improved its balance sheet and is committed to returning $6 billion via buybacks through 2019 in most realistic pricing scenarios.

Investors receive a 2.47% dividend. Jefferies has a $54 price target, and the consensus target is $51.89. Shares closed Tuesday at $42.85.

Royal Dutch Shell

This company has survived the plunge in oil pricing as good as or better than any other major integrated stock. Royal Dutch Shell PLC (NYSE: RDS-A) operates as an independent oil and gas company worldwide through its Upstream and Downstream segments. The company explores for and extracts crude oil, natural gas and NGLs.

Royal Dutch Shell also converts natural gas to liquids to provide fuels and other products; markets and trades crude oil and natural gas; transports oil; liquefies and transports gas; extracts bitumen from mined oil sands and converts it to synthetic crude oil; and generates electricity from wind energy.

In addition, the company engages in the conversion of crude oil into a range of refined products, including gasoline, diesel, heating oil, aviation fuel, marine fuel, LNG for transport, lubricants, bitumen and sulphur; production and sale of petrochemicals for industrial customers; refining; trading and supply; pipelines and marketing; and alternative energy businesses.

The company posted solid second-quarter results and this was noted:

Shell has organically covered the total cost of its dividend at $50 barrel over the last month – underlying free-cash-flow accretion from the BG Group plc takeover last year. With gearing down from 29% to 25% in the first half of 2017 already, the company remains on track to see gearing drop below 20% next year.

Investors receive a 5.76% dividend. The $62.30 Jefferies price objective compares with the consensus estimate of $62.99. Shares closed Tuesday at $55.44.

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These are three solid plays for what may be a slow growth sector going forward. The focus on free-cash-flow generation is smart, in addition to the fact that these top international players have continued to cut costs and unneeded capacity. In a pricey market, they make good sense for 2017 and beyond.

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