Sweet 16 Update - April 6

[dan_s]

The Sweet 16 moved up 1.2% for the week ending April 5 and is now up 15.4%.

On April 4th RBC Capital Markets published a new 29 page report on upstream oil & gas companies, which includes their Net Asset Valuation ("NAV") for all of the 50+ companies that they cover. If you would like to receive the RBC report, send me an email > dmsteffens@comcast.net

NAV = Current Assets + PV10 of Fixed Assets based on each company's year-end reserve report filed with the SEC, but using NYMEX strip prices.
NAV should be close to what each company's liquidation value is today +/- a few dollars.
Here are RBC's NAV's for the Sweet 16 companies included in the report. Note that most of them are very close to my valuations.

$20 for Callon Petroleum (CPE)
$36 for Carrizo Oil & Gas (CRZO)
$20 for Centennial Resource Development (CDEV)
$190 for Concho Resouces (CXO)
$73 for Continental Resources (CLR)
$133 for EOG Resources (EOG)
$41 for Matador Resources (MTDR)
$41 for Parsley Energy (PE)
$230 for Pioneer Natural Resources (PXD)
$30 for Range Resources (RRC)
$7 for Southwestern Resources (SWN)

EIA reported an earlier than normal build in the natural gas in storage for the week ending March 29. I expect EIA to report another build for the week ending April 5. Colder than normal weather is expected to return to 2/3s of the U.S. this coming week, but we are definitely in the "Shoulder Season" when natural gas in storage must build. When real HOT summer weather arrives, the weekly builds will shrink because we now have a lot more gas fired power plants.

Permian Basin gas exceeds pipeline takeaway capacity, which caused the spot prices for gas in West Texas to go negative. Gas prices in the Permian will remain depressed until more pipelines open up late this year. All four of the "gassers" in the Sweet 16 (AR, GPOR, RRC and SWN) do not have production in West Texas. Most of their gas is produced in Appalachia (Marcellus & Utica) where the differentials to Henry Hub gas prices have been reduce thanks to several more pipelines now serving that region. All four companies have a HIGH percentage of their gas hedged at good prices.

The updated Sweet 16 spreadsheet is now on the EPG website. Under Tab 2 you can find my valuation for each company compared to First Call's current price target.

[dan_s]

Energy stocks offer the best risk-reward in the market, but investors are ignoring the sector after equities and oil prices collapsed in tandem at the end of last year, according to J.P. Morgan. While U.S. crude oil prices have rallied 36% this year, the S&P 500 Energy sector is up just 16%. That marks a significant decoupling of oil prices from energy equities based on historical trends, the investment bank said in a research note on Friday.

Read more: https://www.cnbc.com/2019/04/05/investo ... organ.html

[k1f]

Gulfport downgraded (Seeking Alpha):


Gulfport Energy cut at Oppenheimer, with no earnings growth seen to 2020
Apr. 5, 2019 3:52 PM ET|About: Gulfport Energy Corporation (GPOR)|By: Carl Surran, SA News Editor
Gulfport Energy (GPOR +1.2%) moves higher on a strong day for oil and gas names, even after Oppenheimer downgrades shares to Perform from Outperform and removes its $14 price target, seeing no earnings growth for the company out to 2020.

Oppenheimer forecasts ~$200M of free cash flow in both 2019 and 2020 and EBITDA of $925M-$950M, with a narrow range for earnings because swaps cover virtually all of estimated 2019 natural gas production, but these swaps limit 2019 earnings upside if natural gas prices improve.

The firm says it struggles to find value even with GPOR shares just $1 above their 10-year low, and amid a lack of deleveraging or earnings and production growth, it expects GPOR to remain range-bound unless a medium-term growth strategy emerges or natural gas prices rally.

[dan_s]

Gulfport will be one of the most profitable companies in the Sweet 16 this year. Take a look at the Sweet 16 spreadsheet (column R) and you will see that their PE ratio for 2018 was the lowest within the group (under 3).

Year, EPS, CFPS
2017A: $2.38 EPS and $3.45 operating cash flow per share
2018A: $2.64 EPS and $5.09 operating cash flow per share
2019E: $1.18 EPS and $5.13 operating cash flow per share

Reported earnings will be much higher in Q1 2019 than my forecast because of a big mark-to-market gain on their hedges. ~99% of their 2019 gas is now hedged at $2.83/mcf

Production growth will slow from 25.1% in 2018 to ~1.4% in 2019 as they are committed to "live within cash flow" and fund a very aggressive stock repurchase program.

[ChuckGeb]

Keep the stock low while they buy up $400 million in stock. They have great assets and their buybacks enhance the value of the leftovers.

[dan_s]

Along with the previous $200 million stock buyback the $400 million buyback should reduce the outstanding shares by ~30%. That along should raise the share price.

If oil prices go high enough, they may be able to find a buyer for their share of Grizzly, a large Canadian Oil Sands project. That will be like money falling from the sky because Gulfport has written off the entire investment.