The Sweet 16 Growth Portfolio for 2015 spreadsheet has been updated and posted under the Sweet 16 Tab:
> Tab 1 of the spreadsheet is a summary of the EPS and CFPS forecasts
> Tab 2 shows my Fair Value Estimate compared to First Call's Price Target for each company as of 1-10-2015
To get the spreadsheet, log on to the website, click on the Sweet 16 tab, click on the "Sweet 16 Forecasts" link.
You can find details for each company by clicking on their logos. The forecast models for BTE, FANG and ROSE are posted under the "Sweet 16 Forecasts" link. We are rebuilding the EPG website, so the logos for the additions will not be added until we launch the new website, hopefully this month.
All but two companies (CRZO and FANG) are down since January 1.
An encouraging sign is that First Call's Price Targets have increased since January 1 for most of the companies. Several of the First Call Price Targets are above my Fair Value Estimates (BTE, CXO, FANG, MTDR, RRC). None of the First Call Price Targets went down this week, despite further weakness in oil & gas prices. I watch the movement of First Call's Price Targets carefully and so should you. They move when analysts submit updates to Reuters.
All 16 companies are expected to report positive 4th quarter earnings. Keep in mind that a few of them will be forced to take ceiling test or impairment charges. These non-cash charges should be ignored when comparing their results to First Call's EPS estimates. At the end of each year, companies that use the Full Cost method of accounting must compare the book value of their Full Cost Pool to the present value of the 3rd party reserve report and take a charge against income if the book value is higher. These non-cash write downs do not mean they have abandoned the properties or that the recoverable reserves have gone anywhere. The accounting rules for E&P companies are very conservative.
Many of the Sweet 16 will report big mark-to-market gains on their hedges. These should also be ignored when comparing results to First Call's EPS estimates. CLR is going to report a big gain on the hedges that Harold Hamm decided to monetize last quarter.
I do consider hedges and regional commodity price differentials in my forecast models. Hedges are VERY IMPORTANT these days.
I believe the price of oil will rebound during the second half of 2015 and it may happen earlier if OPEC calls an "emergency meeting". I think there is a 50/50 chance of such a meeting this quarter. The economies of more than half of the OPEC nations are being crushed by today's oil price and they are begging Saudi Arabia to do something. Russia could also make a move by agreeing to match a production cut by Saudi Arabia.
Regardless, the sharp drop in the onshore rig count is a clear indication that U.S. shale production growth will slow and may begin a decline by Q3. Lower fuel prices are increasing demand. IEA is forecasting a sharp increase in oil demand in Q3. See: https://www.iea.org/oilmarketreport/omrpublic/
IEA's current forecast is for global demand to increase by 900,000 barrels per day in 2015. I think they will adjust the demand forecast higher as we move through this year. Higher fuel prices lower demand and lower fuel prices increase demand. Today's low fuel prices are a $Trillion stimulus for the economies of the consuming nations, including the U.S.
Sweet 16 Update - January 10
Sweet 16 Update - January 10
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Sweet 16 Update - January 10
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group