With some exploration and production (E&P) stocks at nearly $200 a share, such as those of Pioneer Natural Resources Co. (NYSE: PXD) and EOG Resources Inc. (NYSE: EOG), what’s a small-portfolio manager to do? From small-caps with assets ranging from Kansas, West Texas and North Dakota to the U.K. North Sea, securities analysts aren’t short on investment ideas.

Oil and Gas Investor polled several of them for their favorites for 2014 and dove into the research reports of several more for their views. In just two weeks approaching press time, one of these stocks—that of Eagle Ford operator Penn Virginia Corp. (NYSE: PVA)—hit and then exceeded a Jefferies LLC analyst’s target price. Here’s a look at 15 of the top picks, beginning with Synergy Resources Corp. (NYSE MKT: SYRG), whose shares grew 64% in 2013 to close the year at $9.26. At press time, they had pushed on to $10.35.

Irene Haas, E&P analyst for Wunderlich Securities Inc., says the production-growth story is just beginning for the roughly $800 million market-cap E&P. She had a Buy on its stock and a $14 target in February.

“SYRG’s ability to drive down costs without cutting corners translates into strong margins and superior returns,” she reported. “We would buy this high-growth, well-run and financially strong small-cap name.”

Headquartered within Wattenberg Field in Platteville, Colo., Synergy was formed as a private company in 2007 and went public in August 2008 in a merger with a fellow nascent E&P, Brishlin Resources Inc. The latter had one shut-in well; the former had $2.2 million in cash from private investors and 640 acres of leasehold in Weld County.

The stacked oil pay of Wattenberg Field was being developed vertically at the time, primarily in the Codell, Niobrara and J sand. Ed Holloway and Bill Scaff, Synergy’s co-CEOs, were aiming to do the same. They had been doing that in Wattenberg since the early 1980s.

“Wattenberg Field has been an incubator of small E&P companies for the past 40 years,” Holloway said. “It is one of the most efficient uses of capital in the E&P space.”

The 2008 merger with Brishlin and the departure from their private-company model presented Synergy with a means of accessing a greater amount of capital from the public market, Holloway said. “At the time, the cost of doing business was just going through the roof and we continued to see opportunities in Wattenberg Field. Brishlin had clean financials and very few assets with a strong, loyal investor base.”

From there, Synergy has grown to operating 283 wells and holding nonoperated interest in 75. Net proved oil and condensate reserves were 7 million barrels (bbl) in August 2013; proved gas, 40.7 billion cubic feet (Bcf).

But captivating the equity market today is its new horizontal program, launched in May with five wells at its Renfroe pad. Later in 2013, it followed with the completion of six horizontals at its Leffler prospect. Its production this past fall averaged 3,200 barrels of oil equivalent per day (boe/d) a day, up from just 1,658 a year earlier. It expects to be producing between 9,000 and 10,000 boe/d by Aug. 31—the end of its 2014 fiscal year.

Why horizontal only now? Since making vertical wells in the field was profitable, Synergy had held off, Holloway explained. “With our background in finance, we look at every project with the perspective of what it will cost and how quickly we will reach payback.”

Larger companies with more capital weren’t getting the kind of returns on their early horizontals that Synergy would need. “We kept watching. We had to be convinced that the return on capital was there; the other hurdle was that we had to have access to capital to generate the return.”

It participated in some on a small-interest basis to “learn the ropes. Once we saw the returns growing above those of the verticals, it was a no-brainer: The recoverable reserves per 640 acres from the horizontals can be as much as five times greater. It’s a game-changer and it’s the biggest game-change that’s ever hit Wattenberg Field.”

For example, “it will take about six months for us to accomplish with horizontals (in terms of production rate) what it took us almost four years to build with verticals. That’s how dramatic horizontal development has been.”

In Wattenberg, Synergy’s 25,200 net acres are approximately 50% HBP. It plans to have all of it HBP by mid-2015. To help, it will drill some verticals for about 15% of the cost of a horizontal.

“It’s a huge issue for companies in other areas that have to drill horizontally to HBP their acreage and in a day when everyone is trying to (more efficiently) drill from a pad. If you’re moving to another lease to drill one horizontal, the economics don’t work as well.”

In Wattenberg, however, “you have optionality. The vertical well gives you a geologic marker on your lease and a viable return on investment. You can come in at a later date and drill your horizontals.”

Its $189 million capex plan for fiscal year 2014 includes $150 million for 34 operated and five nonoperated horizontals in the field, with roughly half of these landed in Codell, about 40% in Niobrara B and the balance in Niobrara C. Also prospective for laterals are Niobrara A, Greenhorn and J sand. At press time, it had two rigs at work on its Phelps and Union prospects, drilling six wells from each of two pads.

In addition, the company has 160,000 net acres in Nebraska, where other operators are testing deeper Pennsylvanian- and Mississippian-age zones. It’s keeping an eye on that. It is also watching efforts in these deeper zones in the southern D-J Basin, where it holds 61,000 net acres in Yuma and Washington Counties.

There and in Nebraska, the company has roughly seven years left on its lease term. “Right now, we can be patient and wait for results while we continue development of our Wattenberg assets,” Holloway said.

Synergy gave production guidance a few months ago. He expects it will begin giving quarterly guidance on production during fiscal year 2015 once it has 25 to 30 horizontals online.

“Turning from vertical to horizontal, the technical aspect was seamless for the company. The hurdle for us is building that foundation of horizontal production. There will be spikes as each horizontal pad comes online. There is a lot longer time frame from spud to cash in the bank. I think that’s one thing the investor population doesn’t fully appreciate.

“But we’re focused on making a solid, profitable company with great assets. We’re just on the launching pad of where this company can go through horizontal development. It’s a phenomenal event that is creating momentum for the company that we didn’t anticipate in the beginning.”

Global Hunter Securities LLC senior analyst Mike Kelly had a Buy on the stock and $11.50 price target in early February. “…The company is emerging as one of the strongest small-cap growth stories in the E&P space,” he reported. “We don’t think (fiscal) 2014’s hyper-growth is an anomaly; we’re forecasting a swift pace in (fiscal) 2015 as well.”

He added that “we still believe there is quite a bit of upside potential on top of our $11.50 target upon further delineation efforts of the (Niobrara) zones, as well as the Codell. Our NAV (estimate of net asset value) reflects success in only one zone with 40-acre spacing across its Tier 1, 24,000 net acres in the Greater Wattenberg.”

Approach’s Resources

Meanwhile, J. Ross Craft is working to rid Approach Resources Inc.’s (NasdaqGS: AREX) shares of a market perception that its future is gas-weighted. “(Potential investors) look at us as a whole and say, ‘Your Wolfcamp is different from everyone else’s because everyone else’s has a higher percentage of oil production,’” the president and CEO said.

“Instead, our Wolfcamp is the same, but when we report total production for the company we have more than 600 gas wells mixed in it.”

Approach had been drilling those gas wells in Canyon, Strawn and Ellenburger underlying Wolfcamp since 2004. “Drilling those 600 wells is how we came across the Wolfcamp and came up with the concept of going sideways in it,” he added.

The company’s first attempt in Wolfcamp was a vertical when the geological school of thought was that Approach’s Wolfcamp acreage was in the Val Verde Basin rather than in the Midland Basin. “Most of the literature showed that the Midland Basin didn’t extend as far south as we were. Our efforts helped to rewrite the textbooks. It was correct about the deeper zones but the Wolfcamp is part of the Midland Basin.”

Craft and the team decided to turn to the Wolfcamp in 2009 when natural gas futures were declining and oil futures were rebounding. “We shut our drilling program down, repaid debt and began taking cores (of Wolfcamp). Every one of our 600 gas wells had gone through it.”

A couple of vertical, research wells were drilled in 2010; a first horizontal, in early 2011. Of its 166,000 net acres in the basin, Wolfcamp underlies all of it and Approach has de-risked 107,000 acres to date for Wolfcamp pay. Most of it is HBP by the deep-gas wells.

“The key was getting our costs down. When we started drilling these, our wells cost $8 million; now they cost $4.5 million. And we’re estimating 450,000 boe of reserves (from each, 57% oil, 30% condensate). We’re one of the lowest-cost operators in the area.”

Having the unique position of contiguous acreage, Approach began to build infrastructure in 2012, laying six pipes alongside each location—three water lines, an oil-gathering line, a gas-gathering line and a high-pressure, gas-injection line.

“We knew early on that we would have to reuse our frac water. We took a leap of faith and built the (approximately $80 million) infrastructure system. It’s contributing to lower costs and it’s environmentally responsible.”

The company is landing laterals in the Wolfcamp’s A, B and C zones—69 of them to date in B, eight in A and four in C. “We’re not drilling any vertical wells this year. We’ve basically proven the commerciality of all three benches in our acreage. What we’re focusing on now is drilling multiple wells in A, B and C off the same pad with stacked laterals.

“It works very nicely (vertically) but we have our costs down to such a point that our returns are better on horizontals.”

What about the Wolfcamp’s D bench?

“D is what we call Canyon,” he explained. “A lot of people are calling it Cline. Basically, the Cline is the lower Wolfcamp through the Strawn. Most of the target is in that Canyon remnant. Our Canyon development is the equivalent to the D development right now.”

Fiscally, Approach is set to drill its position without a joint-venture or other capital partner. The company raised $250 million in a debt issue in 2013 at 7% interest. It had also built an oil pipeline, connecting the play to larger pipe, and sold its share of it for $109 million net—a 600% return on investment in less than a year.

Yet, the roughly $870 million market-cap E&P’s stock performance disconnected from that of other Wolfcamp leaders such as Pioneer in the fourth-quarter of 2013. “Our opportunities are similar but we are in the penalty box for reducing 2013 production guidance,” Craft said. A downed fractionator on the Gulf Coast shut in Approach’s production for almost five weeks during the first half of 2013 and its spend on the infrastructure build-out pushed up its overall capex.

“The market views us a little skeptically now; I believe that, if we meet guidance, our stock price will come back. But as for opportunity, it’s the same opportunity. We have 71 horizontal wells producing in the play. We’ve proven our type curve over and over in the A, B and C.

“And we’re further along than many of our peers. We’re basically in full development mode with pad drilling. We’ve done the research. It’s just execution now on the field; it’s a matter of turning this into a manufacturing process.”

Return on investment on these wells is about 37% at $95 oil; 26% at $85; 20% at $70. Meanwhile, oil futures in early March were greater than $82 through February 2017. “We have our hedges. We’re as protected as we can be.”

E&P analyst Haas had a Buy rating on Approach shares and a $42 target in mid-February while the shares were about $20. “As more new Wolfcamp wells come on production, we expect the mix to get oiler,” she reported. “The company has gained more experience with (completing these) during 2013 and is entering 2014 with a detailed schedule on drilling…While there will still be unanticipated events impacting AREX’s plan, the company is starting the year with a better handle on its production ramp in 2014.”

Craft plans to begin reporting Approach’s proved reserves attributable to the horizontal Wolfcamp in addition to company-wide reserves. “The market will get a better understanding then that our Wolfcamp is just like EOG (Resources Inc.)’s, EP (Energy Corp.)’s, anybody’s.

“And we still have this deep gas to be developed.”

Watch these, too

Haas also recommends Clayton Williams Energy Inc. (NYSE: CWEI), on which she had a Buy and target of $110 in February when the stock was about $93. She noted that, after the company provided guidance on expectations from its Wolfbone play in the Delaware Basin, “the stock went on a tear.” Shares bolted from about $68 to $84 in just two trading days. In early March, they were $97. Its market cap had grown 43% in one month, from about $840 million to $1.2 billion.

Haas noted that the company’s fourth-quarter production averaged 14,900 boe/d from across its portfolio, which includes Austin Chalk and Eagle Ford. Its expectations for 2014 are for making between 16,400 and 17,400 boe/d.

“The company plans to run two rigs in the Delaware Basin, targeting Wolfcamp A, B and C. In addition, it plans to have two rigs running in the Eagle Ford. We look for a steady stream of drilling catalysts from it and its competitors in the southern Delaware Basin in 2014,” she concluded.

Several analysts also cited Emerald Oil Inc. (NYSE MKT: EOX), which had a $500 million market cap in early March. Curtis Trimble, senior analyst for Global Hunter, had a Buy on the and a $12 target while they were about $7.50. With a recent 20,800 net acre purchase, Emerald has 85,000 net prospective for Bakken pay. The company funded the $75 million acquisition with half from its $140 million of cash on hand and half from its $75 million bank facility. Its 2014 exit rate is expected to be 4,250 boe/d, up from the 1,870 it was making in the third quarter of 2013.

Trimble reported, “The prospective value added through this transaction…provided the catalyst for our [upgrade]. With the increased depth of its acreage portfolio, we expect the company to add a fourth drilling rig in September.”

Rehan Rashid, E&P analyst for FBR & Co., had an Outperform rating and $8 target on PetroQuest Energy Inc. (NYSE: PQ) shares, which had improved from about $3.70 to $4.70 during February, taking its market cap from about $234 million to $300 million.

“We believe the Henry Hub spot market is in the beginning stages of turning into a premium market,” Rashid reported in late February, “as we expect Gulf Coast/Southeast-area demand growth to exceed the current supply-growth outlook. Within our small-cap coverage group, PetroQuest … provides the best exposure.”

He noted the company’s Thunder Bayou conventional-reservoir prospect may resemble “the highly successful La Cantera project and could be worth as much as $2.25 per share.” Besides its Gulf Coast potential, PetroQuest’s exposure to the Woodford shale in the Midcontinent “is underappreciated and could ultimately be worth $7 per share.” And its work in the Cotton Valley and Mississippi Lime “could get incrementally de-risked as the year progresses …,” he concluded.

Neal Dingmann, managing director of E&P and oilfield-service research for SunTrust Robinson Humphrey Inc., had a Buy on Goodrich Petroleum Corp. (NYSE: GDP) and $30 target on the stock that was $13.62 in early March. The company’s market cap had more than doubled in the second half of 2013 upon strong well results in the Tuscaloosa Marine Shale play. It tumbled in February as Goodrich reported its Weyerhaeuser 51H continued to trouble it and it missed its fourth-quarter production estimate.

Dingmann reported, “There is a good chance the [well] can be remedied, causing it to flow sufficiently and the next few wells … are likely to be solid. However, despite our optimism still about the TMS play, production has been slower to develop than we previously forecasted and we are lowering our production estimates, cash flow estimates and ultimately our price target [from $40] as a result.”

The TMS wells have been challenging in part due to their depth combined with the lateral length; fishing equipment out of the hole has been difficult. Dingmann reported, “Hopefully, by bringing a unit in to drill out the permanent frac plug, Goodrich will be able to fully un-restrict the well.

“Going forward the next wells … will all be landed below the rubble zone and all will use [naturally dissolving] carbonate frac plugs … . We look for results from a couple of the new Goodrich wells relatively soon.”

With a $3 billion market cap in early March just five weeks after its IPO, Rice Energy Inc. (NYSE: RICE) exceeded the traditional E&P small-cap definition, but public float is about $1 billion. Dingmann initiated coverage of it with a Buy and target of $32 in February. The Marcellus- and Utica-focused E&P had priced shares at $21 each in January; they were worth $24 in early March.

Dingmann reported that Rice’s position in Tier 1 acreage in Appalachia is “in what we believe to be some of the most economic areas of the Utica and Marcellus, with the company continuing to aggressively add assets.

“Though having a relatively short track record, Rice has been a leader in early-stage shale development, attaining over 200 [million cubic feet equivalent of daily] production faster than any other Marcellus operator, while reducing drilling and completion costs per foot by nearly 60% in the past several quarters.”

Also newly public, RSP Permian Inc.’s (NYSE: RSPP) market cap was $2.2 billion in early March after IPOing 20 million shares at $19.50 in January. Subash Chandra, E&P analyst for Jefferies LLC, initiated coverage with a Buy rating and $30 target on the shares while they were $25.85. By early March, they had grown to $27.80.

Chandra reported, “RSP Permian offers investors exposure to the Permian Basin, specifically the northern Midland Basin where … multipay potential is emerging. RSP’s acreage position could lend to commercial development from … as many as five reservoirs.”

A pure-play operator in the basin, he noted, RSP has 33,933 net acres and 1,169 potential well locations for middle and lower Spraberry and Wolfcamp A, B and D. “Each zone yields solid economics, but the Wolfcamp A and B are the best of the bunch with an IRR [internal rate of return] of some 37%.”

Meanwhile, with a market cap of $390 million, analysts at Tudor, Pickering, Holt & Co. Securities Inc. had a Buy on shares of Gastar Exploration Inc. (NYSE MKT: GST) in mid-February while the stock was $6.73. The price had just soared from $5.38 to $7.06 in seven trading days upon news of Magnum Hunter Resources Corp.’s (NYSE: MHR) 32.5 million cubic feet equivalent (MMcfe) Utica gusher near Gastar’s acreage.

“Gastar plans to spud a short-lateral Utica test well in April but lateral [length is] likely to increase under full development,” the TPH analysts reported. “The Utica deepens as you move east, so Gastar’s acreage should have [yet] higher pressure and deliverability ... .”

If EUR is 14 billion cubic feet for a Magnum Hunter-type well, costing $12 million, then the analysts expect upside to Gastar shares of between $1 and $2 if making 20 of these wells, and more than $3 if making 50, which is what Gastar expects to drill, they reported.

Also in the Utica and Marcellus, Rex Energy Corp.’s (NasdaqGS: REXX) shares have a favorable outlook from E&P analyst Reed Anderson with Northland Securities Inc. He had an Outperform rating and $25 target in February while the stock was $18.21. Anderson noted that Rex had a small fourth-quarter earnings miss due to higher costs, but “we are encouraged by the company’s execution as Butler County [Pennsylvania] results continue to look solid and downspacing tests in the Utica provide near-term catalysts.”

The company expects a second-quarter production increase of up to 18% and a further increase of up to 30% in the third-quarter. Anderson concluded, “With continued operational efficiencies, solid results and an improving naturalgas [price] environment, Rex looks well positioned for a strong 2014.”

David Tameron, senior analyst for KeyBanc Capital Markets Inc., had an Outperform on Midcontinent-focused Jones Energy Inc. (NYSE: JONE), which IPOed 12.5 million shares in July at $15 each. In early March, the $771 million market-cap E&P’s shares were $15.62.

Tameron had expected the dive, noting the company’s disappointing update on production and reserves guidance. “… For what it’s worth, the Street—us included—likely got ahead of itself with elevated growth expectations with a small-cap name ... .”

That aside, Tameron reported, “Jones Energy offers investors relatively low-risk, producing assets alongside an attractive growth profile and exploration upside potential. Management has solid operational experience, in our view, and a track record as a low-cost operator.”

Meanwhile, SunTrust’s Dingmann had a Buy on Midstates Petroleum Co. Inc. (NYSE: MPO) and $12 target for the shares, which were $4.41 in early March for a market cap of $302 million. The Midcontinent and Gulf Coast operator’s fourth-quarter results were “mostly in line with estimates when factoring in weather,” he reported, which had affected producers in several U.S. basins in December.

The stock was $5.93 at the time and Dingmann had expected it to decline due to the production report. He noted, however, that “the high end of 2014 production guidance also looks in line with current estimates and a bit better when adding back production [that was] curtailed.”

Endeavour International Corp. (NYSE: END), which operates in the Haynesville, Marcellus, Rockies and abroad, was also on Dingmann’s Buy list. The analyst had a $10 target on the stock, which was $4.86 in early March for a market cap of about $230 million. He noted in late February that problems appeared to be nearly resolved with getting one Endeavour well in the U.K. North Sea to come online and with getting a second well back on production.

“While first-quarter cash flow and earnings are likely materially impacted, it appears the company can manage liquidity until production begins to materially ramp again soon. We see the shares continuing to rebound as cash flow rebounds with various incrementals ahead.”

At Northland, Anderson liked Kansas and Permian operator Ring Energy Inc. (NYSE MKT: REI) with an Outperform and target of $20 while the shares were $14.04. In early March, they were $13.79 for a market cap of $325 million. Anderson reported that Ring’s fourth-quarter production that averaged 696 boe/d was in line with estimates. Meanwhile, “its drilling program in the Permian continues at a solid pace. Drilling is expected to begin on its Kansas acreage in February and a second rig in the Permian is planned to arrive at midyear.”

He also noted that the company’s December production was more than 800 boe/d. “Bottom line, Ring appears to be executing on its operational plans, which we find encouraging ... . We look forward to an updated reserve report that will likely be available in the coming months and should illustrate strong growth attributable to its 2013 development program.”

As for Penn Virginia Corp., Jefferies analyst Biju Perincheril put a Buy and $15 target on the shares in mid-February when they were $12.91. The stock soared in the following seven trading days, to $15.15 by early March, for a market cap of $990 million. At the time of the report, the Eagle Ford operator had missed earnings estimates due to postponed completions of several new wells. But, Perincheril noted, production is to grow some 38% this year.

“[Its] Eagle Ford acreage increased to some 80,000 net acres, up from 67,000 reported in early November.” Meanwhile, it now has 1,125 drilling locations, up from 895, “of which only about 280 are currently booked as proved undeveloped locations.

“This provides several more years of reserve growth visibility,” he concluded.