Susan & I had a great week of vacation with friends in Puerto Vallarta Sept 25 - Oct 1 and we got out just in time to avoid the impact of Hurricane Orlene which looks like it will a Cat 2 or 3 when it makes landfall. Winds of 50 to 60 mph are expected in PV today. It looks like it will make landfall well north of PV tomorrow in much less populated areas.
For the week ending September 30th, the Sweet 16 gained 5.46% and it is now up 34.38% YTD.
> September has not been a good month and I am glad to see it in the rearview mirror.
> Q3 oil and gas prices averaged slightly more than what I used in my forecast models ($90 oil and $8.00 ngas), so Q3 results should be quite good for all 16 companies, but not as good as Q2.
During the week the S&P 500 Index lost 2.26% and it is now down 24.77% YTD. In general, this has been a very bad year for stocks and the "noise" causing it will continue, thanks in large part to a very poor leadership teams in Washington, Moscow and the EU. We need people with much higher IQs leading this world.
As of today, the Sweet 16 is trading at 120% below my Fair Value Estimate for the group.
> Trading at just 2.44 X 2022 operating cash flow per share. Companies of this quality should trade for 6X CFPS and EOG Resources (EOG) is the only one at 5X CFPS. CLR and MGY are the only ones over 3X CFPS.
> Based on my 2023 Adjusted Earnings per Share estimates the average PE ratio is just 3.37.
Four of our five gassers lead the pack and I expect them to have very strong Q3 and Q4 results.
> AR up 74.46%
> CRK up 113.72% < a PURE gasser with lots of upside in the Haynesville.
> EQT up 86.84% < the largest US ngas producer
> RRC up 41.67%
Out 5th gasser, SilverBow Resources (SBOW) is up 22.68% YTD, but it is nowhere near my valuation of $105.00/share. It is the smallest company in the Sweet 16 with a market-cap of just $600 million, but it is going to report strong production growth in Q3 and Q4.
All 16 companies are free cash flow positive and none of them has near-term debt problems.
SBOW, Callon Petroluem (CPE) and Earthstone Energy (ESTE) closed on September with market-caps below book value. There is NOTHING to justify any of these companies trading below book value. All three will report production growth from Q2 to Q3.
As I posted earlier today, FEAR of a recession and a strong US dollar are the only things keeping a lid on oil prices. Global oil supplies are not keeping up with demand and winter is just a few weeks away with space heating fuel inventories (heating oil, natural gas and propane) all below normal for this time of year. Plus, I expect OPEC+ to announce a significant production cut next week because the cartel is totally tapped out of production capacity.
Thursday's natural gas storage report looked like a "guess" by EIA to me. Regardless, more ngas furnaces will be coming on week after week in October and draws from storage will begin mid-November with ~300 Bcf less than the 5-year average in storage.
I will record a podcast this afternoon and focus on the Sweet 16 at the end.
Sweet 16 Update - Oct 2
Sweet 16 Update - Oct 2
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group