Energy production is an inherently risky business, one reason the industry has some of the lowest earnings multiples around.

Few other industries have the bulk of their assets buried in the bowels of the Earth, their prevalence estimated by reasonable guesses in the best-case scenario.

And because most energy products trade as commodities and are sensitive to economic cycles, their value has tended to be volatile and highly cyclical.

All of which helps to explain why oil and gas producers have some of the lowest market earnings multiples – given the risks, investors demand a generous safety margin.

It also helps to explain why the Conservative Portfolio is by far our smallest basket of recommended investments. There just aren’t many names in energy that fit the bill. A hefty yield isn’t enough, and can in fact denote plenty of risk.

In the last year we dropped from the Conservative portfolio Eni (NYSE: E) and Total (NYSE: TOT), which were neither conservative enough nor sufficiently rewarding. But only now has the opportunity come to replace them with two new picks we can wholeheartedly endorse, at a valuation that appears to be more than fair.

The first value proposition is BP (NYSE: BP). The once ailing multinational has come a long way in the last two years, largely placing behind it the Gulf of Mexico oil spill that once put its very survival in question. BP has also struck a deal converting its perennially threatened Russia joint venture into an equity stake in the state-owned oil giant Rosneft, removing another major headache and distraction.

The divestiture binge necessitated by the Macondo spill has netted the company $38 billion since 2011, and BP plans to raise an additional $10 billion via asset sales by the end of 2015.

Sell Britannia

Source: company presentation

That doesn’t include the $12 billion in cash proceeds from the Russian deal BP received in March, which allowed it to institute an $8 billion share repurchase program. Of that total, $5.5 billion was spent in 2013, and the buybacks have accelerated so far in 2014 with $1.3 billion spent in the first five weeks of the year.

Of course, the Russian deal was a one-off. But the company plans to use the proceeds from the next $10 billion yard sale “for shareholder distributions with a bias to share buybacks.” More encouragingly, BP is targeting cash flow of $30 to $31 billion in 2014, up from 21 billion last year. That would cover not just its $25 billion capital spending plan but also much of its $7 billion tab for a dividend now yielding 4.7 percent. Changes in working capital account for more than half of the projected cash flow gain, and BP will be relying on an active drilling program in the Gulf of Mexico and the restart of a modernized Midwest refinery to supply the rest.

The money returned to shareholders via dividends and share buybacks over the last year amounts to 9 percent of the current market capitalization. And while BP likely can’t sustain this pace of capital return it still should be able to give back more than its pricier multinational competitors.

Among the recent coverts to BP’s value proposition is the leading hedge fund manager David Einhorn, who disclosed a new stake in the company in last month’s letter to investors. “Allowing for more negative legal outcomes than BP has currently provisioned we believe the company’s net asset value (NAV) is nearly $70 a share.” Einhorn, who also praised BP’s “improved return on capital in its core businesses, bought in at an average price of $47.39, 2 percent less than shares fetched today. The stock has room to rise more than 40 percent before hitting his NAV estimate.

With more buybacks on the way and a rich yield at hand, the downside appears much more modest. Buy BP below $56.

Our other new Conservative Portfolio recommendation appears not to have bought back any of its stock in the last year, opting instead to increase cash reserves and prepay an interest-bearing investment obligation, while still paying a generous dividend. Even so, ConocoPhillips (NYSE: COP) has several key advantages over its larger integrated rivals, including current Conservative portfolio mainstay Chevron (NYSE: CVX).

Among these is a lower valuation based on the important Enterprise Value/EBITDA metric than either Chevron or ExxonMobil (NYSE: XOM), higher operating margins, a bigger exposure to unconventional US plays and, not coincidentally, faster production growth.  Despite halting its share buybacks and despite a significant paring of Berkshire Hathaway’s (NYSE: BRK) investment in Conoco late last year, the share price has still outperformed Exxon’s and Chevron’s over the last two years and five years.

After spinning off its refining operations as Phillips 66 (NYSE: PSX) in 2012, Conoco is focused exclusively on exploration and production. And its smaller size has allowed it to boost production and replace reserves with smaller projects than some of the large-scale ones that have inflicted delays and cost overruns on rivals.

Like BP, Conoco has made upstream divestitures as well, recently netting more than $7 billion from the sale of its interests in Kazakhstan and Algeria to bring its total 2013 asset sale proceeds to more than $10 billion. A renewed focus on US production has lowered the tax bill and boosted the cash margin per unit of output 11 percent year-over-year.

Fourth-quarter output was down 6 percent and flat adjusting for downtime, disposals and the loss of production in anarchic Libya. But Conoco did add almost twice as much as it produced to reserves, and produced more of the extra lucrative crude and other liquids to deliver an adjusted earnings gain of 5 percent last year.  The company is targeting production growth of 3 to 5 percent, excluding Libya, this year.

Conoco generated nearly $4 billion in cash from operations last quarter, enough to cover 85 percent of its capital outlays. The asset sale proceeds not only covered the relatively modest $900 million quarterly dividend tab but also allowed the prepayment of $2.8 billion toward a Canadian oil-sand joint venture that would otherwise have charged Conoco interest, and will soon serve to meaningfully increase its cash flow.

Source: company presentation

Though Conoco retains a global footprint, much of the near-term upside will come from its extensive investments in the Canadian oil sands, the Gulf of Mexico and unconventional domestic shale plays, notably the Permian Basin and the Bakken as well as Eagle Ford and Niobrara. Conoco is also stepping up investment and production in Alaska to take advantage of the recently approved tax incentives.

Crude output in the Lower 48 was up 24 percent last year, and is likely to drive much of this year’s growth as well. And the current 4.3 percent dividend yield provides a nice floor even if Libya remains off-line indefinitely.

Although the stock has held up marginally better than Exxon or Chevron so far this year, it’s still down 8 percent despite the recent uptick, providing a compelling entry point. Buy COP below $73.