Big oil earnings will double next year, top-rated energy analyst says

Terreson: Unknowns still remain in OPEC output deal

Energy stocks have been on a tear this year, and Wall Street's top-rated analyst thinks they've got more room to run in 2017 — roughly twice as much room to be exact.

Big oil earnings are poised to double next year as crude prices continue to march higher and oilfield services costs remain depressed, said Doug Terreson, head of energy research at Evercore ISI and Institutional Investor's top-rated analyst for integrated oil.

That would be a welcome change for integrated oil companies, which handle everything from drilling for crude to marketing fuel. They have seen their earnings decline significantly from last year as they grind through an oil price downturn now in its third year.

Terreson's top picks are Royal Dutch Shell, BP, Exxon Mobil and Chevron.

But he also sees upside for smaller independent exploration and production companies and oilfield services firms.

"We're unrepentantly bullish here. Investors portfolios in our view should be overweight energy and this includes integrated oil, E&P and oilfield service stocks," he told CNBC's "Fast Money: Halftime Report" on Wednesday.

"Our call this year has really been not to overthink it because with the oil price rising and costs declining, performance would probably be pretty good, and so far so good," he said.

Oil field workers on a rig in Tioga, North Dakota.
Ken Cedeno | Corbis | Getty Images

Energy has been the best-performing group for the year. The sector is up 21.7 percent year to date, and independent drillers in particular were heading higher on Wednesday after OPEC agreed to its first deal to cut production in eight years.

The accord is aimed at balancing oil markets, which have been oversupplied for more than two years by as much as 2 million barrels per day. The Organization of the Petroleum Exporting Countries said it would aim to reduce its members' output by 1.2 million barrels a day and was close to securing cuts totaling 600,000 barrels a day from non-OPEC members, including Russia.

"While we expected OPEC to cut production, today's outcome exceeded our expectations," Terreson said. "So this is a positive outcome for the oil markets, and we also think for the outlook for energy stocks in 2017 too."