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On Apr 13, Zacks Investment Research upgraded EPL Oil & Gas Inc. 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, EPL’s 2012 year-end proved reserves tally was 109% above the year-earlier level, with an impressive reserve replacement of 187%.

As a result of these bullish factors, the tendency for an upward estimate revision has been more obvious in recent times. In fact, three out of 5 estimates for the first quarter have moved higher in the past 60 days, pushing the Zacks Consensus Estimate up by 5 cents (or 7%) to 80 cents. For 2013, four out of 6 estimates moved north in the past 60 days, helping the Zacks Consensus Estimate advance by 14 cents (or 4%) to $3.47.

Other Stocks to Consider

In addition to EPL, there are certain other domestic upstream energy operators like Cheniere Energy Inc. (LNG - Snapshot Report), Stone Energy Corp. (SGY - Analyst Report) and Range Resources Corp. (RRC - Analyst Report) that offer value and are worth buying now. All these firms sport a Zacks Rank #1 (Strong Buy).