Sweet 16 Update - March 12

[dan_s]

The Sweet 16 had another very good week, up 4.28% for the week ending 3/11/2016. The portfolio is now up 4.86% year-to-date, compared to the S&P 500 Index that is down 1.06% YTD.

Obviously, the fact that oil prices are drifting higher is the primary reason. This group also reported decent 4th quarter results. All of them are generating solid cash flows from operations, even at today's low commodity prices. Fund managers are rotating more cash back to the Energy Sector because they know it must survive and it was the most beaten down sector last year.

The three "gassers" have done well this year, bouncing off lows in December. AR up 8.85%, GPOR up 10.87%, and RRC up 26.41%.
Natural gas prices are likely to remain depressed over the next six months, so this group probably has limited upside until the next winter heating season comes back on the Wall Street radar screen. As I have posted here, the U.S. natural gas market is going to be 4-6 Bcf per day tighter heading into next winter. Higher NGL prices this summer could help the group. All three of them produce a lot of NGLs. You can find the product mix for each company at the bottom of their forecast models. GPOR's equity offering last week lowered my valuation to $40.70, but it also shores up their balance sheet and will lower future interest expense.

Devon Energy (DVN) also sold more common stock to give them more flexibility until they conclude some asset sales, which should bring in $2 Billion. I am expecting DVN to be a big mover for us in the 2nd half of this year. Read the profile and you'll know why.

Three companies are now approaching my valuations: XEC, EOG and FANG These are great companies that probably deserve a higher multiple than what I'm giving them. FANG is already trading at more than 20X 2016 operating cash flow per share, so I recommend harvesting your gains on that one.

SM Energy (SM) has doubled in the last two weeks, but it is still trading at less than half of my valuation. They spoke at three conferences recently which is what helped. You should all listen to the webcast of their Raymond James conference presentation. SM is trading at less than 2.5 X 2016 operating CFPS, which compares to a multiple of 9.3X for the group.

The Permian Basin and SCOOP/STACK are the oil plays with the best economics. CLR, NFX, XEC and DVN are all reporting estimated ultimate recoveries ("EUR") on SCOOP/STACK wells of over a million boe on wells that only cost $5 million to drill and complete. D&C costs of $5/boe are FANTASTIC, especially on wells that produce half the EUR amount in the first two years they are on-line. You all need to take the time to study what is going on up in Central Oklahoma. If not for the depressed oil prices, this play would be getting a lot more coverage.

All of the Sweet 16 profiles have been updated (except for CLR which will be finished by Monday) and are now available on the EPG website.

The Sweet 16 spreadsheet that shows my valuations compared to First Call's price targets is available right now.

[Fosterplc]

Thanks for the buying tips and, more importantly, the tips on when to sell. Its a good start to the year!

[dan_s]

The View From Houston will be sent out in the morning. Putting the final touches on it now.

[jb2257]

I really appreciate your pointing out which companies have reached their fair valuations. That helps when trying to pick which stocks still have some price appreciation left.

[dan_s]

My updated profile on CLR will be sent out via e-mail later today. Sorry for the delay on that one.

You all need to read carefully what CLR is saying about SCOOP and STACK. CLR is the furthest along on testing various well patterns to determine the best way to develop these plays. Recent extended reach laterals are getting FANTASTIC results.

[dan_s]

Barclays increased its price target on Pioneer Natural Resources (PXD) to $129 from $115 and maintained its "equal weight" rating on 3/15.