Sweet 16 Update - April 13

[dan_s]

The Sweet 16 gained 3.55% during the week ending April 12th and is now up 18.95% year-to-date. All of last week's gains came on Friday as the Wall Street Gain got a jolt of reality (on how undervalued the upstream companies are) from the Chevron announcement that it will be taking over Anadarko Petroleum (APC), a former Sweet 16 member. APC gained 32% on Friday.

The Sweet 16 is still trading at an 86% discount to my "Fair Value Estimates" and a 33% discount to First Call's Target Prices. First Call's target prices are based on MUCH LOWER oil prices than we have today.

Our "Elite Eight" got the most attention on Friday with Parsley Energy (PE) and Pioneer Natural Resources (PXD) both gaining more than 11% on the day. If Exxon or Occidental are eyeing a takeover to compete with Chevron, these two and Concho Resources (CXO) should definitely be on their lists.

As I highlighted in the last newsletter, I believe Centennial Resource Development (CDEV) is a "Screaming Buy" up to $12/share (First Call's Price Target is $14.22). Centennial was grossly oversold when they announced a big cutback on their drilling program in response to the low oil & gas prices in the Permian. I added CDEV to the Sweet 16 on May 21, 2018 when it was trading at $19.69/share. IMO the company is in much better shape today. Based on their 12/31/2018 reserve report, just their proven reserves (P1) have a PV10 value of almost $3 Billion, which is higher than their market-cap.

Keep in mind that because of the sharp increase in oil prices from December 31 to March 31, the companies that have a lot of their oil hedged will be reporting BIG mark-to-market losses on their hedges. On the flip side, all four of the Sweet 16 "gassers" (AR, GPOR, RRC and SWN) will be reporting BIG gains on their hedges. I do expect natural gas prices to pull back to $2.50/mcf this quarter, but the large deficit of gas in storage should lend some support to gas prices.

Carrizo Oil & Gas (CRZO) trades at the largest discount to my valuation and I think it is a PRIME TAKEOVER TARGET.

Taking a hard look at EnCana (ECA) has now moved to the top of my To Do List.

We will be sending out a first profile on Magnolia Oil & Gas (MGY). It is a fairly new public company, but it has solid financial support and lots of running room in South Texas.

In addition to a profile on EnCana, we will be publishing fresh looks at Antero Midstream (AM), BlueKnight Energy (BXEP), MPLX LP (MPLX), Hemisphere Energy (HMENF) and Vertex Energy (VTNR) later this month.

[mkarpoff]

Once again, were a company like Carrizo taken over at a 30% premium most of us would lose $. No thanks on takeovers at these prices.

[ChuckGeb]

Agree. If the sweet 16 starts throwing in the towel except for possible strategic combinations with stock as the currency, we may as well move on to something else like the Cannabis stocks.

[dan_s]

Guys, if one of the Sweet 16 is taken over at a big premium, just cash out and move the money to another one. "M&A Frenzy" is a good thing because it brings attention and investors to all of the companies.