These two U.S. drillers have 'great rocks': Analyst

For investors who believe in a long-term recovery in oil prices, it might be the time to look at a few exploration and production companies, Wells Fargo Securities analyst David Tameron told CNBC's "Power Lunch" on Thursday.

Tameron likes mid-cap company Concho Resources, which he said benefits from a great management team and operates in the large and highly productive Permian Basin in Texas. Concho can produce at levels above its peers while staying within cash flow parameters, he said.

Analysts have cautioned that some E&P companies will have to cut production growth this year in order to keep their balance sheets healthy. These firms have funded growth through by borrowing on the high-yield debt markets.

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He said large-cap EOG Resources also has best-in-class management with "great rocks" in the core of the Permian, as well as the Bakken, which lies beneath Montana and North Dakota, and Texas' Eagle Ford.

That said, oil markets are not yet close to a turning point, he said. The cost of benchmark crude oil has plunged more than 50 percent from the highs of last summer.

"I still think you need to see some of these capital budgets get announced," he said, noting that budgets are down 20 to 30 percent. "Maybe it's that February-March time frame, so maybe we're just on the precipice but not quite there yet, so give it another month."

At current capex and oil price levels, the number of U.S. rigs in operation could fall by 600 to 650 from a high of 1,900.

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Investors should exercise caution when it comes to players operating in the Bakken, where the spread between the revenue that drillers get for a barrel of oil and the cost of bringing that barrel to market has fallen below $40.

While a Bakken-exposed company such as Oasis Petroleum is fine in the long term, it has cut its rig count and could continue to struggle along with other drillers in the play.

Disclosure: Neither the analyst nor his family members own shares of the companies discussed. His firm holds greater than one percent ownership in some of them and provides investment banking services to them.