Sweet 16 Update - Mar 13

[dan_s]

The Sweet 16 was up another 1.54% during the week ending 3/12/2021 and is now up 78.60% YTD. The S&P 500 Index is up 4.99% YTD.

All 16 companies have now announced Q4 2020 results and updated their detailed guidance for 2021. I have updated the forecast/valuation models for each company and you can find them on the EPG website under the Sweet 16 tab. I highly recommend that become familiar with these forecast models as they are a valuable tool in your due diligence.

I have been following all of the companies in the Sweet 16 for many years and I have a high level of confidence in my models.

I also update the main Sweet 16 summary spreadsheet each weekend. It shows my Fair Value Estimate for each company compared to First Call's current price target. During periods of significant changes in commodity prices (like we are in now) the First Call price targets are outdated, but the direction they are moving tells me that other analysts are increasing or decreasing their price targets. Each week I highlight in yellow the valuations of the companies that I have taken a hard look at during the preceding week. Since last week I have adjusted my valuations for XEC, CRK, CLR, ESTE, PDCE, PXD and TALO.

Earthstone Energy (ESTE) and Talos Energy (TALO) announced Q4 results last week and I have updated their valuation models.

Matador Resources (MTDR) is getting close to my valuation and I cannot justify increasing my valuation at this time. This doesn't mean the stock price won't go higher, it just means that I don't think the fundamentals justify a higher price. I will be replacing MTDR in the next newsletter.

Pioneer Natural Resources (PXD) is also closing in on my valuation, but it deserves a very high multiple of operating cash flow since it is going to generate several $Billion of free cash flow this year. The Wall Street Gang loves PXD and that "love" draws a lot of attention to the stock.

Callon Petroleum (CPE) is up 201.67% YTD, but it still has a lot of upside for us. My valuation of $57.00 is probably too low.

If you have not done so already, I highly recommend that you watch the replay of our Friday, March 12 webinar. The U.S. natural gas market is adequately supplied TODAY but it is going to be grossly under-supplied heading into the next winter heating season. We have four "gassers" in the Sweet 16.
AR is up 87.89% YTD < Still trading below book value.
CRK is up 42.56% YTD
EQT is up 47.52% YTD < Still trading below book value.
RRC is up 57.76% YTD
All of these "gassers" have at least 50% more upside because an under-supplied U.S. gas market can cause a significant increase in both gas and NGL prices. The U.S. is the world's largest gas market and we also export a lot of natural gas and NGLs.

NGL prices are going up faster than the price of oil. I show each companies production mix at the bottom of their valuation models. AR is the largest producer of NGLs.

[dan_s]

I have also updated the Proved Reserves for each company on Tab 2 of the main Sweet 16 spreadsheet.

Proved Reserves and the PV10 valuation of the P1 reserves are prepared by 3rd party highly-respected petroleum engineering firms using SEC guidelines. The prices used are the average for the trailing 12 months, so they are extremely low (under $40/bbl for crude oil and under $2.00/mcf for natural gas). Commodity prices are MUCH HIGHER today, so the PV10 values based on today's oil, gas and NGL prices will be 3X or more what the PV10 value was on 12-31-2020.

Just remember that SEC accounting rules are extremely conservative for upstream oil & gas companies. There is nothing to justify any of these 16 companies trading below book value and most deserve to be trading at 3X to 4X book value because they hold a lot of extremely valuable acreage.

[dan_s]

We will be sending out updated profiles this week;
March 15: PDC Energy (PDCE) with fresh valuation of $53.00
March 16: EQT Corp. (EQT) with fresh valuation of $26.00

I will be in Dallas Sunday to Thursday. Starting Friday, I will focus on finishing up the fresh profiles on all of the remaining Sweet 16.