On January 2, Zacks Investment Research upgraded EPL Oil & Gas Inc. ( EPL - Snapshot Report ) to a Zacks #1 Rank (Strong Buy).

Why the Upgrade?

EPL has been using acquisitions to expand its presence in the Gulf of Mexico (GoM). Higher crude prices and increased production have been a boon for this independent energy exploration company, whose earnings are expected to rise strongly in 2012 and 2013.

EPL reported third quarter 2012 non-GAAP earnings per share of 31 cents on November 1, beating the Zacks Consensus Estimate of 24 cents by 29.2% and the year-ago profit of 28 cents by 10.7%.

Results were driven by liquids volume (oil and natural gas liquids), which was up 10.8% year over year to 8,901 barrels per day (Bbl/d). EPL’s output growth can be attributed to solid performance from the ongoing rig activities.

The company expects the uptrend to continue and projects liquids volumes to hit 13,000–14,000 Bbl/d in the fourth quarter, going further up to 17,500–18,500 Bbl/d in 2013.

On October 31, EPL completed its previously announced acquisition of certain shallow water GoM assets from privately-held Hilcorp Energy GOM Holdings LLC for $550 million. The transaction will increase EPL’s proven reserves base by almost 100% to roughly 74 million oil-equivalent barrels (BOE), while boosting daily production by some 80% to more than 20,000 BOE.

Based on the success of the company’s acquire-and-exploit policy, analysts are predicting strong earnings growth for EPL over 2012 and 2013. The 2012 Zacks Consensus Estimate of $1.70 represents earnings per share growth of 50.0% over 2011. The Zacks Consensus Estimate for next year is $3.29, corresponding with 94.3% growth.

Other Stocks to Consider

The following energy firms with favorable Zacks Rank are also performing well and are worth considering.

1) Cabot Oil & Gas Corp. ( COG - Analyst Report ) carries a Zacks #1 Rank (Strong Buy)
2) Delek U.S. Holdings Inc. ( DK - Snapshot Report ) holds a Zacks #2 Rank (Buy)