Sweet 16 Update - Sept 23

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

Sweet 16 Update - Sept 23

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For the week ending September 23rd the Sweet 16 lost 23.33% and is now up just 28.92% YTD. The Energy Sector still leads the market.
The S&P 500 Index lost 3.78% during the week and is now down 22.51% YTD.

All 16 companies are going to report strong results for the 3rd quarter. For Q3 WTI crude oil will end up averaging close to $90/bbl and HH natural gas will end up averaging just slightly below $8.00/MMBtu. So, actual oil, gas and NGL prices should be very close to the commodity prices used in all of my forecast/valuation models. Q3 results won't be as good as Q2 results, but they will still be VERY GOOD.

Some of them will report large mark-to-market gains on their hedges. MTM gains and losses are ignored in my valuations, but they do draw some investor's attention.

> All 16 companies are expected to report free cash flow from operations during the quarter.
> They all have strong balance sheets and zero near-term debt problems.
> Ten of the Sweet 16 pay dividends and several of them have well-funded stock repurchase programs underway.

In my September 20th newsletter I highlighted the five companies (ESTE, EQT, NOG, PDCE and SBOW) that are going to report the largest quarter-over-quarter increases in production and revenues, primarily due to acquisitions.

What caught my eye this morning is that 9 of the 16 companies actually saw their First Call price targets increased last week (AR, CRK, CLR, EQT, EOG, NOG, OVV, RRC, SM). The only significant FC price target reductions were LPI ($119.71 down to $113.38), MTDR ($76.22 down to $74.57) and SBOW ($83.50 to $75.00). Keep in mind that smaller companies have fewer analysts covering them, so one upgrade or downgrade can have a significant impact on the price targets.

If you watched our webinar on Thursday (the replay link is on the EPG website now) you know that the supply/demand fundamentals support much higher oil, gas and NGL prices than we see today on the NYMEX strip. However, there is so much "noise" (Fed rate hikes, escalation of the war in Ukraine, Europe's energy crisis, China's Covid Lockdowns, etc.) that is causing money is being sucked out of the market. My guess is that hedge fund managers are being forced to raise cash to pay their investors that want to cash out. A lot of hedge funds do allow withdraws at the end of each quarter.

Oil prices are directly impacted by the rise in the US dollar, which is now up 17.4% YTD, which explains the oil price pullback from $100/bbl.
> During Q3 the WTI oil daily closing prices have been from $105.07 in early July to yesterday's closing price of $78.74. On Sept 23 WTI dropped $4.75.
> During Q3 the HH ngas daily closing prices have been from $5.38 in early July to $9.70 late August.. HH gas closed on Sept 23 at $6.84, down $0.25 on the day.
Wild price swings for oil and gas are now the "New Normal". I am still using $95/bbl oil and $9.00/mcf gas prices in my Q4 forecasts because I do think the fundamentals support higher commodity prices. I won't adjust my commodity price deck until late October< but you can download the forecast models for all of the companies in the Sweet 16 to see how different oil and gas prices impact them.

Keep in mind that the U.S. natural gas market and to a lesser extent the NGL markets are much different than the global oil market. They don't have as much "headline risk". It is also important to remember that demand for natural gas and propane are more "seasonal". Their high demand season (winter) is just ahead.

As the S&P 500 Index tells us, this is a very bad BEAR MARKET where FEAR is in control. Despite their outstanding results, the Sweet 16 is not shielded from "Market Risk".

Bad governments in general and very bad energy policies are producing FEAR and a global energy crisis. Europe's citizens will pay the highest price. The next six months will remind the world how dependent we are on fossil fuels.

I will be on vacation next week in Mexico, but I will be checking the markets and the EPG Forum each day.
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

Re: Sweet 16 Update - Sept 23

Post by dan_s »

Read the article at the link below to understand why natural gas prices should be a lot higher in a few months.

https://www.zerohedge.com/energy/rampin ... rgy-winter
Dan Steffens
Energy Prospectus Group
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