With everything seemingly looking up for the energy sector, there could very easily be a geopolitical item right around the corner that could move the price of oil higher.

The current administration has already stated its dislike of the Iran deal forged under President Obama in no uncertain terms. Monday, the stakes were pressed even higher after the Israeli Prime Minister said that captured Iranian documents indicated that the country has allegedly been lying about its nuclear program for years.

All of this makes Jefferies starting coverage of four top exploration and production companies extremely timely. In new research report, analyst Thomas Hughes picks up the coverage:

Thomas Hughes assumes coverage preferring those companies with greater exposure to oil as he sees potential for 2018 US oil growth to underwhelm versus expectations; he is forecasting US shale oil growth to be ~590 million barrels per day between the fourth quarter of 2017 to 2018, roughly two-thirds of what it was in 2017 (~900 million barrels per day) driven by: 2018 base declines (resulting from the 2016/2017 investment cycle); current operator climate towards capital discipline (capex is up ~10% yoy while the commodity is up 24% (first quartere 2018 versus 2017); and an increasing level of operational bottlenecks which are becoming more prevalent as the cycle matures.

Of the four companies Jefferies assumes the coverage on, three are rated Buy and one is rated Hold.

Continental Resources

This company has very large exposure to crude oil. Continental Resources Inc. (NYSE: CLR) is primarily a producer of onshore U.S. oil and has positioned itself in two growing hydrocarbon discoveries in the country: 1) the Bakken oil play in Montana and North Dakota, and 2) the SCOOP/STACK in Oklahoma, giving the company good growth opportunities for years to come.

Many on Wall Street feel that the company’s investment thesis is virtually unmatched. Investors get core Permian-like acreage at a non-Permian valuation. Of greatest importance, Continental is one of few diversified large-cap stocks that offers investors exposure to low-cost oil outside of the Permian. With some anticipated growing pains in the Permian, diversification is important in the high-quality peer class.

The analysts cited the company as a favorite and noted this:

Driven by significantly better 2016 and 2017 results when utilizing high intensity completions, an unhedged 2018 and 2019 oil production profile which we estimate generates a 5.4% and 5.6% free cash flow yield at the strip, and an expansive low-cost oily resource inventory which provides decades of drilling locations, we are adding the company to our Top Picks list.

The Jefferies price target on the shares is $78, and the Wall Street consensus target was last seen at $62.37. The shares traded early Wednesday at $66.20.

Newfield Exploration

This company has one of the best production mixes of the stocks rated Buy, with oil, natural gas and the balance in natural gas liquids (NGLs). Newfield Exploration Co. (NYSE: NFX) is an independent energy company engaged in exploration, development and production of crude oil, natural gas and NGLs. It is focused on North American resource plays, and the company’s principal areas of operation include the Mid-Continent, the Rocky Mountains and onshore Texas. In addition, Newfield has oil developments offshore China.

The analysts shared this in the research report:

Since the fourth quarter of 2017, STACK exposed names have sold off massively, underperforming our coverage’s median return by ~11% year to date. The market’s buckshot approach to STACK valuation has created an opportunity in Newfield, where we see 2017 wells outperforming 2014-2016 wells. As investors look for non-Permian exposure, the company maintains sufficient STACK inventory that makes a spacing concern driven sell-off puzzling. The company is in show-me mode and should rerate with execution.

Jefferies has set its price target at $36, while the consensus target is $36.34. The shares were last seen trading at $28.30 apiece.

Oasis Petroleum

This smaller independent could be an outstanding play for more aggressive accounts. Oasis Petroleum Inc. (NYSE: OAS) is an independent exploration and production company that focuses on the acquisition and development of unconventional oil and natural gas resources in the North Dakota and Montana regions of the Williston Basin. Its principal projects are located in West Williston and East Nesson.

With 518,000 net acres across North Dakota and Montana, Oasis had 305 million barrels of oil equivalent per day of proved reserves at year’s end 2016 that were 62% developed and 78% liquids. The company also has identified about 2,200 gross operated locations targeting the Middle Bakken and Three Forks formations.

The analyst is very positive on valuations, and noted this:

Despite acquiring a Delaware asset in 2017, we still estimate the company trades at a ~0.5x discount to the group on 2019 EBITDA and at an even greater discount to Delaware pure-plays. With Oasis self-funding E&P capex and the addition of a premium multiple asset, we think the company trading near historically low levels vs. the group (2020 Enterprise Value to EBITDA) creates an attractive opportunity.

The $13 Jefferies price target compares with the $12.21 consensus figure. The shares traded at $10.95 Wednesday morning.

Cimarex Energy

This is a top play for investors looking to the Permian Basin, though it was started with a Hold rating at Jefferies. Cimarex Energy Co. (NYSE: XEC) is an independent exploration and production company. Its primary activities are in the Mid-Continent and Permian Basin areas of the United States.

The company is focused on increasing shareholder value through strategies linked to generating attractive economic returns on capital employed and profitable growth in per-share reserves, production and cash flow. It intends to profitably grow reserves and production through a balanced mix of exploration, exploitation and acquisitions.

The analyst said this when discussing Cimarex:

While completion intensity-driven improvements are encouraging, the company is currently on the leading edge and will likely experience less “rate of change” relative to peers. With minimal basis hedging or FT to mitigate these Delaware concerns, we think a historic multiple premium will no longer be awarded.

Cimarex investors are paid a small 0.64% dividend. Jefferies has a $100 price target. The posted consensus target is set much higher at $134.58, but the shares were trading at $99.70.

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Given the situation, it is looking increasingly like sanctions could be reimposed on Iran, and that should move oil prices higher, even if just for the short term. The three stocks rated Buy the analyst likes are not overcrowded and offer good value for investors looking to add energy.

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