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On Mar 9, Zacks Investment Research upgraded EPL Oil & Gas Inc. (EPL - Snapshot Report) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

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

EPL reported fourth quarter 2012 non-GAAP earnings per share of 67 cents on Mar 7, beating the Zacks Consensus Estimate of 47 cents by 43% and the year-ago profit of 39 cents by 72%.

Results were driven by liquids volume (oil and natural gas liquids), which was up 43% year over year to a record 13,516 barrels per day (Bbl/d). EPL’s output growth can be attributed to solid performance from its oil-weighted projects, as well as contribution from the Hilcorp property buy.

On Oct 31, 2012, 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.

The company expects the volume uptrend to continue and projects liquids volumes to hit 16,000–17,000 Bbl/d in the first quarter, going further up to 17,000–18,500 Bbl/d in 2013.

Based on the success of the company’s acquire-and-exploit policy, analysts are predicting strong earnings growth for EPL in 2013. The Zacks Consensus Estimate of $3.29 represents earnings per share growth of 79% over 2012.

Other Stocks to Consider

In addition to EPL, one can look at downstream operators like Calumet Specialty Products Partners L.P. (CLMT - Snapshot Report) and NGL Energy Partners L.P. (NGL - Snapshot Report), as well as domestic energy explorer like Memorial Production Partners L.P. (MEMP - Snapshot Report) as attractive investments. All these firms – sporting a Zacks Rank #1 (Strong Buy) – offer value and are worth accumulating at current levels.

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