In the previous issue of The Energy Strategist, we highlighted dividend-paying names that stood to grow their production in coming years and benefited from a favorable production mix. Here are three of our favorite bets on a recovery in oil prices.

Over the past few years, a trend has emerged among US-based exploration and production outfits. Buffeted by ultra-depressed natural gas prices and a surfeit of supply, operators have scaled back spending on this fuel while announcing plans to boost output of oil and natural gas liquids (NGL).

EOG Resources (NYSE: EOG) was among the first E&Ps to begin this transition, securing territory in key US unconventional oil fields roughly four years ago. This foresight should pay off: The company has amassed substantial acreage in the most prospective areas of four major shale oil plays: the Eagle Ford, the Bakken Shale, the Barnett Combo, and the Wolfcamp and Leonard Shale plays in the Permian Basin.

The rapidity with which management implemented this new strategy is staggering. In 2007 natural gas accounted for 77 percent of EOG’s revenue; in 2010 the firm garnered more than 42.5 percent of its revenue from liquids output, roughly three quarters of which was from oil. Last year, EOG Resources’ oil production surged by 53 percent and liquids output accounted for more than 50 percent of sales.

These trends continued into the first quarter of 2012, with oil and condensate output contributing about 50.5 percent of the firm’s total revenue, up from 40.1 percent in the first three months of 2011. A 49 percent upsurge in oil production drove these gains. Management also raised its full-year guidance for liquids production growth to 33 percent from 30 percent without increasing the expected level of capital expenditures.

Although EOG Resources remains bullish on NGL prices in the intermediate to long term, management acknowledged that ethane prices would likely remain under pressure in coming quarters. Fortunately, NGL output accounts for a relatively minor percentage of the firm’s overall revenue, chipping in about 7.6 percent of first-quarter sales.

Management expects to allocate about 90 percent of the firm’s 2012 capital budget to drilling activity in oil-rich formations. Much of this activity will occur in the Eagle Ford, as the company works to hold its acreage by production.

CEO Mark Papa and his team correctly believe that the firm won’t get full value from ramping up gas production in the current environment, but the firm’s acreage in Louisiana’s Haynesville Shale and the Horn River Basin in British Columbia will be premier holdings when natural gas prices recover. Management’s current plan calls for investments in dry-gas basins to decline to 5 percent of overall capital expenditures in 2013.

In addition to EOG Resources’ oil-weighed production profile, the company’s first-mover status in the Eagle Ford Shale and other plays–as well as the quality of its acreage reduces–its cost base and boosts internal rates of return. For example, management estimates that, after taxes and input costs, the company earns a roughly 50 percent rate of return on its horizontal average well in the Eagle Ford Shale.

Operational excellence also continues to lower EOG Resources’ cost of production. For example, the company has reduced the time it takes to drill and case a well in the Eagle Ford to about 13 days, which reduces costs substantially. These improvements prompted the company to cut the number of active rigs in the field to 23 from 27 without scaling back its drilling plans.

EOG Resources’ drilling expenses should decline even further once the firm’s sand production facility in Wisconsin expands later this year, enabling the firm to self-source this critical input. Shortages of sand for hydraulic fracturing have been a fact of life in the hottest US shale plays. Using its own sand will improve operational efficiency and lower costs by another $500,000 pert well.

The company has also tackled midstream challenges in the Bakken Shale and Eagle Ford, partnering with NuStar Energy LP (NYSE: NS) to develop a rail offloading terminal in St. James, La., with a maximum capacity of 100,000 barrels of oil per day. Not only will this capacity support EOG Resources’ rising production from these basins, but the company also markets its oil output based on the price of Louisiana Light Sweet crude oil–a varietal that currently commands a higher price than West Texas Intermediate. Management estimates that this arrangement boosts price realizations on its output from the Bakken Shale by about $14 per barrel.

Moreover, EOG Resources continues to refine its production methodologies in its core plays to bolster liquids recovery rates. In a conference call to discuss first-quarter results, management highlighted how reducing the spacing between horizontal wells in the Bakken Shale and Eagle Ford Shale not only increased the firm’s drilling inventory substantially but also boosted output from surrounding wells.

Investors looking for upcoming catalysts for the stock should monitor the company’s enhanced oil recovery efforts in the Bakken Shale and the Eagle Ford Shale.

EOG Resources plans to boost output in its core acreage in North Dakota by pumping water into the play to increase well pressure–an enhanced recovery technique that the industry has used extensively in conventional plays. Producers in the Canadian portion of the Bakken Shale have used this strategy with success, but water-flooding has yet to be implemented south of the border. The exploration and production company will also test the efficacy of injecting gas into its Eagle Ford acreage in an effort to boost recovery rates.

EOG Resources hedges only a quarter of its oil output, leaving the firm exposed to price fluctuations. Although the recent pullback in energy prices will weigh on the firm’s second-quarter results, oil prices appear to have bottomed and we remain bullish on the company’s long-term growth prospects.

Critics often point to EOG Resources’ lack of major discoveries over the past few years. However, investors would be foolhardy to overlook the firm’s significant growth potential in its existing leasehold, a position that the company has the financial wherewithal to exploit without dilutive joint ventures.

Management has also assured investors that EOG Resources continues to seek greenfield oil opportunities in North America and noted that announcements will be forthcoming once the firm builds its acreage position and test wells confirm these plays’ potential.

One of the best-run independent exploration and production outfits in North America, EOG Resources boasts an enviable production mix and continues to execute. EOG Resources rates a buy up to $125 and is an absolute bargain when the stock trades for less than $90 per unit.

Aggressive Portfolio holding Oasis Petroleum Corp (NYSE: OAS) offers pure-play exposure to the Bakken Shale and boasts more than 300,000 net acres that are prospective for Bakken Shale and the Three Forks trend. As such, crude oil accounts for about 82 percent of the company’s reserves, a favorable mix with natural gas prices likely to remain depressed an volatile for at least the next two to three years.

Management estimates that the company has 1,300 potential drilling locations in the Bakken Shale alone. As efforts to develop and prove the productivity of the Three Forks/Sanish formation progress, the firm could add another 1,200 low-risk drilling locations to its inventory. Plans to reduce the spacing between wells could also double the number of potential drilling sites.

In the first quarter of 2012, Oasis Petroleum’s output averaged 17,600 barrels of oil equivalent per day. The firm currently runs 10 drilling rigs in its acreage and its hydraulic fracturing teams will soon run on a 24-hour cycle. Management’s full-year guidance calls for production to average between 18,000 and 22,000 barrels of oil equivalent per day, an achievable goal.

This year marks a period of transition in Oasis Petroleum’s growth story, with the company focused primarily on optimizing its drilling and completion techniques and holding its acreage by production.

Although logistical constraints have weighed on operators returns in the Bakken Shale, management notes that roughly 800,000 barrels per day of takeaway capacity is in the works. This construction boom, coupled with the gradual improvement of production techniques in the Bakken Shale, bodes well for Oasis Petroleum’s future growth.

When oil prices and energy-related stocks have pulled back in recent years, acquisition activity in the Bakken Shale has heated up. In October 2011, Statoil (Oslo: STL, NYSE: STO) took advantage of attractive valuations to acquire Brigham Exploration for USD4.4 billion.

At the time of its acquisition, Brigham Exploration held about 375,000 net acres in Bakken Shale and produced an average of 16,000 barrels of oil equivalent per day. Statoil paid about USD285,000 per barrel of oil equivalent production.

Based on Oasis Petroleum’s high-quality assets and strong production growth, management would likely demand at least $45 per share in any acquisition. In such a scenario, the total value of the deal would be well under $5 billion, an easy mouthful for a host of major oil companies.

At the current quote, shares of Oasis Petroleum represent a bargain for both individual investors and prospective acquirers. Oasis Petroleum Corp rates a buy up to $38.

Growth Portfolio holding Occidental Petroleum Corp (NYSE: OXY) is an international oil and gas exploration and production company (74.6 percent of 2011 revenue) that also operates a US chemicals business (19.5 percent) and owns midstream assets (5.9 percent).

With all the hype surrounding shale oil and gas plays, investors might be surprised to learn that Occidental Petroleum is the nation’s leading producer of liquid hydrocarbons in the Lower 48, a region that accounted for about 60 percent of the firm’s oil and gas output in the first quarter.

We originally added the stock to the model Portfolios as an undervalued play on a recovery in oil prices, an investment thesis that still stands in the current environment. Oil represents about 61 percent of the firm’s total production.

In the first quarter of 2012, the integrated oil company lifted about 204 million barrels of oil equivalent per day from the Permian Basin, an area in west Texas with a long production history that’s been revitalized by advances in squeezing oil from mature wells. Management estimates that the company is responsible for roughly 15 percent of the oil produced in the Permian Basin.

Carbon dioxide (CO2) injections account for about 64 percent of the company’s output in this rejuvenated, while 30 percent is generated by water-flooding. Both technologies facilitate production in mature fields by artificially increasing well pressure. Management expects output from these recovery techniques to remain relatively flat in 2012

Primary drilling and production account for just 10 percent of Occidental Petroleum’s output in the Permian Basin, though management has noted that its acreage contains more than 2,000 prospective drilling sites. Occidental Petroleum has increased its capital expenditures on these activities by 75 percent and has ramped up its development program in the Bone Springs, the Avalon Shale and the Wolfberry portions of the Permian Basin. These efforts, coupled with the roughly 300 third-party wells in which the company participates, will drive regional production growth in the back half of the year.

Few investors would regard California as a huge energy producer–probably because the population boom of the 1940s and huge oil discoveries in the Middle East distracted many producers from developing the area.

Beginning in 1998 with the acquisition of its Elk Hills acreage from the government, Occidental’s geologists have made some unprecedented discoveries in the state, including a massive conventional find in Kern Country.

And that says nothing about the approximately 870,000 acres the company holds in prospective shale plays. A long history of seismic activity in the area has essentially pre-fractured the field, substantially lowering costs. The company plans to drill more than 80 vertical wells in shale plays outside Elk Hills in the first half of 2012. Thirty-day production rates on these $3.5 million wells range between 300 and 400 million barrels of oil equivalent per day, 80 percent of which is oil and condensate. Occidental Petroleum grew its non-Elk Hills production by 30 percent in the first quarter as part of a strategic effort to focus on liquids output.

California regulatory authorities are starting to work through Occidental Petroleum’s backlog of permit requests; management will revisit the firm’s planned capital expenditures in the back half of 2012.

Management continues to leverage the firm’s experience in maximizing production from mature fields to win business in the Middle East. The firm inked a 30-year contract with the Abu Dhabi National Oil Company to participate in the development of the Shah natural gas field, one of the region’s largest. The company will have a 40 percent stake in the play, and management expects capital expenditures of roughly $4 billion. But the field won’t enter production until 2014.

With about $3.8 billion in cash on the balance sheet, Occidental Petroleum has the scope to complete a larger deal but prefers to pursue organic growth opportunities. Although Chesapeake Energy Corp (NYSE: CHK) reportedly rebuffed Occidental Petroleum’s $3.5 billion offer for assets in the Permian Basin, the integrated oil company is unlikely to pursue any large-scale deals. CEO Stephen Chazen explained the rationale behind this strategy in a conference call to discuss first-quarter results:

[W]e’re just not going to do anything material. Again, bargains are one thing, but so far I haven’t heard of any bargains coming by. And we’re actually not a real estate company, and so we’re not actually –and a lot of the stuff that people has for sale isn’t exactly ocean-front property. And so we’re pretty cautious about large scale acreage acquisitions. So if we can steal it, that’s fine. But right now we have so much on our plate.

Over the long haul, Occidental Petroleum’s expertise in maximizing production from onshore fields should enable it to grow its business in the Middle East. Meanwhile, the Permian Basin provides a solid production base and plenty of opportunity to expand through bolt-on acquisitions. The company’s dominant acreage position in California also shows promise, and we like the firm’s exposure to Brent crude oil prices.