What's going on with SN?

[jb2257]

I had a nice gain in this one, but am now riding it down. Is it because of the private offering? I can't seem to find anything else.

[dan_s]

Nothing jumps out at me. There is lots of concern in the market over the dip in oil prices. If you add back a few bucks for the strong US dollar, oil prices are actually holding up well. Increasing oil demand is just ahead.

You can download the SN forecast model (under Sweet 16 tab) and play with the oil & gas prices at the bottom of the spreadsheet to see how they impact earnings and cash flows. All of the P&L line items are macro driven and they adjust automatically to changes in production volumes and prices at the bottom.

[jb2257]

Is this stock worth holding onto now that it has dropped below the 200 day MA? I had a nice gain, but am really getting nervous and wonder if I should just take my small gain and move on.

[dan_s]

You would be selling at the bottom of a well defined trading channel that has been created over the last two years.

Go to the 2-year chart and draw a line through the tops and draw a line through the bottoms and you will see what I mean. This does not mean it can't go lower, but patterns like this are fairly strong.

SN is going to report a big jump in production from Q2 to Q3 and they are on-track to exit this year with production near 50,000 boe per day (up from 20,427 boepd in the 2nd quarter). First Call's target price is $41.38 and my Fair Value Estimate is $50.35 per share. Crude oil prices would have to drop below $80/bbl before my FVE got down to $40. I take a long-term view and unless I see a significant shift in the fundamentals I don't change my valuations. As I have posted here many times, September is a soft month for oil demand. Demand for crude oil ALWAYS goes up in the 4th quarter. See the chart at the bottom of the IEA website. Here is the link: http://omrpublic.iea.org/

I firmly believe that OPEC will defend Brent at $100/bbl. Brent has come off the low and is now back to $99/bbl.

If it keeps you up at night and you feel over-exposed then you should sell it. I personally keep a lot of my portfolio in the pfd stocks and MLPs listed in our High Yield Income Portfolio. I like the cash flow and they are more stable, trading more on yield than for growth. We all need to do what we feel most comfortable with.

[setliff]

here's what dan is talking about----

http://stockcharts.com/h-sc/ui?s=SN&p=W ... &listNum=1

[jb2257]

A lot of traders will sell when stocks go below their 20 day MA which is the line in the sand. Maybe next week will be better as this has been a terrible month so far.

[ghrcap]

SN has had some minor surface equipment issues with line pressure at W. Catarina which have hindered completions a bit. Bringing on newer wells is retarding older wells. Supposedly, 3Q volumes are as guided, but 4Q could be impacted as they reconfigure lines. The cc will clarify and Johnson Rice has kept SN on its focus list. I see it more as an add here than a sell, but giving up a year's worth of gains is depressing at best.

[jb2257]

It seems that the traders had that news that you're reporting which explains the price decline. I stayed in that one way too long, but feel that it is too late to sell now unless there is more bad news.

[ghrcap]

Macquarie has an upgrade list out which includes two Sweet 16 names, SN and XEC, which they take from neutral to outperform. They put a $42 target on SN. Anybody have the report?

[dan_s]

FWIW Macquarie is a first class outfit. We need more analysts to point out that these stocks are grossly oversold. Of course that doesn't mean the share prices will go up, especially if WTI keeps going lower.

[dan_s]

SN has 13,000 bopd of their crude oil hedged for 2015 (over 50% of forecast production).
> 8,000 bopd with a SWAP at $90.60
> 2,000 bopd with Collars that have floors at $90
> 3,000 bopd with Collars that have floors at $85