The biggest news in the energy markets last year became a reality on January 1 as OPEC finally cut its production for the first time in years. While it is no secret that some countries will cheat, and Iran has no intention of slowing its newly resumed oil sales, there is reason to believe that most will adhere to the cuts, as the spot price of oil needs to be higher for many Middle East nations as that is their main source of revenue.

In a recent Jefferies research report with some top picks for 2017, the firm notes that cash flow momentum in the sector is vastly better than it has been in some time. The analyst expects sector cash from operation to increase 57% this year and compounded annual growth to be a whopping 44% in 2018. The report noted this:

Fundamental conditions for the integrated oil sector are arguably the most favorable since 2012. Company self-help measures have driven break-even prices down to $50 per barrel, while OPEC intervention in the oil markets has likely put a floor on Brent prices in the low- $50’s. In other words, the sector is now able to cover its dividend burden with free cash flow; in fact, we expect a sector free cash flow yield of 5.1% in 2017, which exceeds the dividend yield of 4.6%.

These three top U.S. stocks make the cut at Jefferies, and all are rated Buy at the firm.

Chevron

This stock is very solid story for investors looking to stay long the energy sector, and it is a preferred U.S. company to own now. Chevron Corp. (NYSE: CVX) is an integrated oil and gas company with worldwide operations in exploration and production, refining and marketing, transportation and petrochemicals. It sports a sizable dividend and has a solid place in the sector when it comes to natural gas and liquefied natural gas (LNG). Some on Wall Street estimate the company will have a compound annual growth rate of over 5% for the next five years.

The company’s Permian Basin assets are a goldmine, and that the Australian LNG business will transition from a yearly $8 billion capital consumption drag to a $2 billion to $3 billion contributor. Combined with the much lower overall capital spending for the 2016 to 2018 period, the company is poised to not only hang around, but end the sector slump in a much better position. The analysts note the Permian acreage is profitable at $40 a barrel.

CEO John Watson has made it clear that preserving the dividend for investors is the top priority. Wall Street analysts point out that although the company trades in line with its peers, the growth potential and solid balance sheet deserve a 10% premium.

Chevron investors receive a 3.71% dividend. Jefferies has a $141 price objective for the stock. The Wall Street consensus price target is $123.58. Shares closed trading last Friday at $116.38 apiece.

Marathon Oil

This is a leading integrated oil and gas company with extensive upstream operations. Marathon Oil Corp. (NYSE: MRO) operates through three segments. The North America Exploration and Production segment develops, explores for, produces and markets crude oil and condensate, natural gas liquids (NGLS) and natural gas in North America.

The International Exploration and Production segment explores for, produces and markets crude oil and condensate, NGLs and natural gas in Equatorial Guinea, Gabon, the Kurdistan Region of Iraq, Libya and the United Kingdom, as well as produces and markets products manufactured from natural gas, such as liquefied natural gas and methanol in Equatorial Guinea.

The Oil Sands Mining segment mines, extracts and transports bitumen from oil sands deposits in Alberta and Canada, and it upgrades the bitumen to produce and market synthetic crude oil and vacuum gas oil.

Top analysts cite the company’s higher multiple businesses, and the upstream cash margins have room to move up as shale production increases and oil prices recover. They also point out the stock trades at a very attractive discount to net asset value relative to industry peers.

Marathon investors are paid a 1.15% dividend. Jefferies raised its price target for the stock to $22, while the consensus price objective is listed at $20.81. The stock closed most recently at $17.45.

Royal Dutch Shell

This company has survived the plunge in oil pricing as good as or better than any other major integrated stock. Royal Dutch Shell PLC (NYSE: RDS-A) operates as an independent oil and gas company worldwide through its Upstream and Downstream segments. The company explores for and extracts crude oil, natural gas and NGLs.

Royal Dutch Shell also converts natural gas to liquids to provide fuels and other products; markets and trades crude oil and natural gas; transports oil; liquefies and transports gas; extracts bitumen from mined oil sands and converts it to synthetic crude oil; and generates electricity from wind energy.

In addition, the company engages in the conversion of crude oil into a range of refined products, including gasoline, diesel, heating oil, aviation fuel, marine fuel, LNG for transport, lubricants, bitumen and sulphur; production and sale of petrochemicals for industrial customers; refining; trading and supply; pipelines and marketing; and alternative energy businesses.

The company generated almost 4 billion cubic feet per day of natural gas in the third quarter of this year from its integrated gas operations and another 6.40 billion cubic feet per day from its upstream operations. The company produced solid third-quarter results that exceeded Wall Street expectations.

In fact, the third-quarter numbers were so good that many firms increased their estimates and price objectives as a result. In addition, many see Royal Dutch Shell as the world’s preferred integrated oil supermajor due to its overwhelming global presence.

Royal Dutch Shell investors are paid a huge 5.76 % dividend. The $67.50 Jefferies price target compares with the consensus target of $61.75. The shares ended last week at $55.48 apiece.

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These Jefferies picks make sense for investors as they all have solid upside potential and outstanding core business silos, and they all pay a dividend. While prices could remain volatile, the $50 floor appears in for barrels of West Texas Intermediate and Brent, and that should help maintain solid cash flows this year and next.

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