Sweet 16 Update - June 15

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dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

Sweet 16 Update - June 15

Post by dan_s »

I have updated the main Sweet 16 Growth Portfolio spreadsheet and it will be posted to the EPG website later today. The portfolio declined 4.22% during the week ending June 14th.

My valuations have not changed since being updated for Q1 results and fresh guidance. In fact, new information provided recently by Continental Resources (CLR) and EnCana Corp. (ECA) has caused me to raise the stock valuations for those two. There have only been slight movements in First Call's price targets for the 16 companies.

Callon Petroleum (CPE) announced the closing of a non-core asset sale last week and I got some new information on PDC Energy (PDCE). I have updated my forecast/valuation models for both companies. Stifel published a new detailed report on PDCE on June 13th. Stifel's valuation is $57.00/share.

The physical oil market is in balance and we are now at the beginning of the high demand summer season. FEAR caused primarily by the lack of progress in the trade dispute between the U.S. and China is behind the talk about a global recession. Let's hope President Trump and China's President Xi Pinging meet during the G20 Summit in Japan to at least agree to restart negotiations to resolve their differences. Despite all of the gloom & doom, it is encouraging to me that the overall market is holding up quite well.

Things adding support for oil prices:

> Attacks on two oil tankers in the Gulf of Oman (just east of the Strait of Hormuz) presumably backed by Iran, have increased the geopolitical risk premium. Last week the premium price for Brent over WTI increased by 7% last week to $9.53/bbl. Most of the South Texas Eagle Ford oil sells under contracts tied to the LLS market. LLS oil trades at a slight discount to Brent. I expect the tensions between the U.S. and Iran to escalate. The U.S. is definitely going to increase the financial pressure on Iran and Iran's leaders are likely to keep funding terrorist. Attacks on defenseless tankers is not going to draw more countries to their side.

> OPEC is meeting in Austria on June 25 & 26. They are expected to extend their production quota agreement. If Russia also agrees to limit production it should give oil prices a boost.

> June through September is the seasonal peak period for transportation fuel demand.

> We should see steady declines in crude oil inventories in the U.S. and OECD countries as refiners ramp up to over 95% of capacity soon.

The companies with a lot of their oil hedged will be reporting a big increase in "Reported Net Income" for Q2 thanks to the mark-to-market accounting rules for derivatives. Details on each company's hedges can be found at bottom of each forecast/valuation model. I adjust for hedges and regional oil, gas and NGL prices differences in the models.

All four of the "gassers" are well hedged and they are expected to report solid Q2 net income. First Call's target prices for all four are much high than where they are trading today.
Dan Steffens
Energy Prospectus Group
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