After 50 years of chasing returns tied to the whims of commodity prices, upstream exploration and production (E&P) investors can now look forward to upside from an unlikely indicator: sustainable positive cash flows.

“Historically, the only thing that mattered to the direction of E&P cash flow growth—and investment performance—was changes in the price of commodities,” said Raymond James analyst Marshall Adkins in a July 13 research note, along with Praveen Narra. However, the Raymond James researchers think they have uncovered a paradigm shift that will redefine growth and profitability for the U.S. oil and gas industry.

“We now think E&Ps are capable of growing cash flows solely through volume growth and cost efficiencies—and in spite of a backwardated oil curve. This is a major paradigm shift in the energy sector as this suggests that U.S. E&Ps, and thus oilfield service companies, can continue to grow in the face of declining commodity environments.”

In the half-century before fracking, the report noted, U.S. oil production had been falling, and extraction costs increasing, with oil and gas companies outspending cash flows to keep up.

Outspending cash flow “is wired into their DNA,” said Adkins. “The only logical reason to own the U.S. E&P sector has been the hope that oil and gas prices would go up. Hope is not a strategy or investment philosophy.”

But sector investors have a new hope—that this 50-year paradigm is about to change.

“With rising U.S. production and falling costs per unit of production, U.S. E&P companies are now poised to actually grow cash flows, even in a flat or modestly lower energy price environment,” Adkins said.

This dramatic shift, he said, driven by increased horizontal well efficiencies, should lead to a more sustainable improvement in E&P profitability and capital efficiency.

“We now think that U.S. E&P cash flow generation could actually outpace capital spending, even in the declining oil and gas price scenario predicted by today’s futures prices. Investors should begin to rethink how they perceive the growth potential (and corresponding multiples) of U.S. energy investments.”

Based on their model and assuming strip pricing, total 2014 U.S. E&P cash flow growth should be up a “whopping” 30% year over year, according to the report, titled “Is It Time to Rethink U.S. Energy Investments?” This is in contrast to recent years.

From 2006 through 2012, U.S. E&Ps spent $960 billion in capex, per Raymond James estimates, while generating $670 billion in operating cash flow. The difference is an outspend of 40%.

“The magnitude and longevity of the overspend suggests poor overall E&P returns over the past decade.”

The changeover began in 2013, when the deficit was just 20%, compared with a 60% cash-flow-to-capex deficit in 2012.

And the gap should be nonexistent in 2014, Adkins said, with E&Ps actually cash-flow positive for the next five to 10 years. The difference? Production volumes are increasing at a rapid clip, and cost efficiencies are substantially improving production growth per unit of capex.

“Improved efficiencies have allowed U.S. E&P production per unit of capex to scream higher over the past decade,” he said. “That means even in a flat or backwardated commodity environment, E&P cash flows can still improve.”

This change suggests that the U.S. energy space is no longer driven solely by the commodity price cycle, but more resembles the manufacturing space, he said.

“If investors eventually come to the same conclusion—that cash flow and spending growth are perhaps more sustainable than in prior periods—perhaps the multiples for both E&P and oilfield service companies can rise from the mid-single-digit range (5x to 7x for E&Ps, and 5x to 8x for OFS companies), to something approaching that of industrial companies (in the 8x to 10.5x range).”

This, he said, could be “just what the stocks need to break out to higher levels.”

He added that significant growth in oil and gas volumes, combined with efficiency gains, “has set up a future where the U.S. oil and gas industry can post solid, profitable growth in a flat energy-price world.”