Sweet 16 Update - Jan 12

Sweet 16 Update - Jan 12

Postby dan_s » Fri Jan 11, 2019 5:57 pm

The Sweet 16 moved up another 7.14% during the week ending January 11th, despite some profit taking on Friday. The portfolio is now up 15.49% YTD.

Despite the solid profits that this group reported in 2018, the upstream sub-sector was the worst preforming group on Wall Street. FEAR drove the selloff, because the fundamentals are solid for this group. The Sweet 16 became grossly oversold in the 4th quarter, so this year's good start is really just a bounce back to reality in my opinion.

Leading the pack are Callon Petroleum (CPE) up 30.82% and Southwestern Energy (SWN) up 28.15%, which is one of our new additions for 2019.

As a group, the Sweet 16 is still trading at an 87% discount to my valuations, which are based on rather conservative oil & gas prices for 2019 and 2020. Six companies (AR, CPE, GPOR, PE, PDCE and RRC) are still trading below book value, which IMO is insane. They are all going to be profitable in the 4th quarter and in 2019 unless there is a very big drop in oil & gas prices. AR, CRZO and GPOR are all trading at less than 2X my operating cash flow per share forecast for 2019.

West Texas Intermediate (WTI) averaged $59.32/bbl in the 4th quarter and Louisiana Light Sweet (LLS) averaged almost $64/bbl. Combine decent oil prices with much higher natural gas prices during the quarter and I think the Wall Street Gang may be surprised by how profitable these companies were.

If you believe that oil prices will continue drifting higher (like I do) then Continental Resources (CLR) is a heck of a BUY. First Call's valuation is $65/share and I think that will be raised when the Wall Street Gang sees the company's year-end reserve report. CLR generated $3.4 Billion cash flow from operations in 2018 (over $700 million in free cash flow) and, based on my forecast, they should generate $3.6 Billion in cash flow from operations in 2019 (based on an average realized oil price of $52/bbl).

As I posted earlier, the weather pattern is changing and colder than normal weather is on its way to the eastern U.S. after January 15th. If the jet stream locks into a cold pattern, which is now the forecast, it will drain U.S. natural gas in storage and also create a lot of demand for propane and home heating oil.

Under Tab 1 of the Sweet 16 spreadsheet you can find the estimated date when each company will be releasing Q4 2018 financial results. Many of them will release operational updates, capex budgets for 2019 and year-end reserve reports earlier. I will do my best to keep up with the information flow.
Dan Steffens
Energy Prospectus Group
dan_s
 
Posts: 19064
Joined: Fri Apr 23, 2010 8:22 am

Re: Sweet 16 Update - Jan 12

Postby dan_s » Fri Jan 11, 2019 6:24 pm

OilPrice.com: Friday, January 11, 2019

Oil entered a bull market this week, having gained 20 percent since the low point reached in December. WTI rose above $52 per barrel, while Brent moved above $61. “The mood brightens, and the market realizes that the world economy and oil demand are not grinding to a halt,” Norbert Ruecker, head of macro and commodity research at Julius Baer Group Ltd. in Zurich, told Bloomberg . “Moreover, there is confidence that the petro-nations will cut supplies as promised to balance the market.”

FEAR and GREED drive investors.
Dan Steffens
Energy Prospectus Group
dan_s
 
Posts: 19064
Joined: Fri Apr 23, 2010 8:22 am


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