Sweet 16 Update - Feb 13

[dan_s]

I have updated the Sweet 16 summary spreadsheet, which will be posted to the EPG website on 2/14. On the spreadsheet you can compare my valuation to First Call's price target for each company. FANG is the only company trading close to my valuation today. FANG should be compared to the other Permian Basin companies like CPE, CXO, LPI and PE.

Top Picks for SCOOP/STACK in Oklahoma are NFX, DVN, CLR and XEC. This oil play is one of the few areas that can generate decent returns with WTI near $30/bbl.

The Sweet 16 is down 10.6% YTD, compared to the S&P 500 Index that is down 9.0%.

Oil prices took us on a wild ride last week, moving lower and then spiking 12% on Friday. Speculators have HUGE short positions, so we can expect more short covering rallies on rumors of any move by OPEC to cut production or any real threat to supply. All out war in Syria with Turkey now joining the fight should be more of a concern for traders.

I have updated 10 of 16 forecast models, rolling them forward into 2017. I still need to update AR, CXO, EOG, PE, RRC and SWN.

I will be adding PXD to the Sweet 16 and dropping SWN. SWN has halted all drilling and their production will be dropping.

I would like to move LPI, MTDR and SM to the Small-Cap Growth Portfolio eventually. I just need to have more time to study some large-caps that are high on my radar screen.

I will be taking hard looks at PDCE, NBL and OXY. If you are seeking dividend yield take a look at OXY. They have over $4 Billion of cash on the balance sheet, which is more than enough to cover their 2016 capex program. They have announced a goal to increase production by 10% in 2016. OXY is a global company with a big stake in the Permian Basin. When I worked for Hess, OXY was one of our most respected partners in West Texas.

XEC, FANG, GPOR and LPI will be reporting 4th quarter results next week.

Most of the companies will report big non-cash impairment charges in Q4 (thanks to lower commodity prices), so focus on cash flow from operations. Think of Impairment as taking a big slug of DD&A expense at one time. These writedowns will reduce future DD&A expense and improve reported earnings in the future. "Impairment" is not "Abandonment". The companies still own the assets and all of the oil & gas reserves they contain. This is just one of the SEC rules invented to confuse investors, second only the mark-to-market adjustments on hedges.