3 speculative oil explorers for the top of your watchlist

A weaker 2015 forecast for two of these three could make their share price appealing.

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There has been some talk lately about the ASX hitting headwinds, with companies struggling to generate organic earnings growth, and relying on cost-cutting as well as mergers and acquisitions to deliver earnings growth.

While I'm generally a big fan of merging businesses and taking a scalpel to expenditures, earnings generated in this way can mask the underlying level of activity in a company's core business sector. In other circumstances earnings can be 'artificially' elevated by external business conditions (such as low interest rates causing an increase in the number of loans issued) and misrepresent the medium-term potential of a business.

Low interest rates have been great for your investment if you bought Commonwealth Bank of Australia (ASX: CBA) shares two to three years ago, but the looming spectre of rising rates make a purchase today much more risky.

Instead you might want to consider owning shares of a different kind, both more fairly valued and with better prospects for organically growing their value over the coming years.  In this instance I'm talking about oil shares, like Beach Energy Limited (ASX: BPT).

Beach Energy and fellow miner Cooper Energy Ltd. (ASX: COE) both delivered record levels of production in 2014, and have flagged marginally lower levels for 2015 despite ongoing exploration success. Beach Energy in particular is a solid bet with $400 million cash in the bank and no debt, and heavy capital expenditure to underpin production in the future. Cooper Energy is also in a pretty good position, with $50 million cash to fund the company's 'biggest drilling program yet'.

Both companies are down roughly 5% recently, though I expect them to rally when 2014's record results are published in the annual report. Following this I expect a gradual decline as shareholders realise the records of FY2014 won't be duplicated in FY2015 – and therein lays the opportunity for investors.

Shrewd oil-focussed investors may be aware of a third company, Sundance Energy Australia Ltd (ASX: SEA) which today announced an increase in quarterly production of 157% on the prior corresponding period. As you might expect, shares leapt skywards, and the good news doesn't look to be quite over yet with Sundance buying another 11,000 acres of exploration territory and reducing its costs per barrel by several percentage points.

Sundance's quarterly report is unusually transparent with breakdowns of costs for lease, general admin and tax expenses per barrel, and I eagerly await their annual report for a more in-depth analysis.

These aren't the only oil companies on my radar either, having recently read The Motley Fool's report into the black goldIf you're interested, simply enter your email address into the link below – it takes literally 30 seconds – and we'll give you access to this special report completely FREE!

Motley Fool contributor Sean O'Neill owns shares in Beach Energy.

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