Sweet 16 Update - May 28

[dan_s]

The Sweet 16 had another good week. The portfolio was up 2.27% for the week ending May 27 and it is now up 31.16% year-to-date. The S&P 500 Index is up just 2.70% YTD.

Continental Resources (CLR) is now leading the pack, up 82.16% YTD. It is followed by Range Resources (RRC), up 68.06% YTD. Both of these solid companies became grossly oversold in the 4th quarter of 2015. I love the merger of RRC with MRD. You should all watch the recent webcast of why they did the deal on the RRC website. RRC will become the U.S. natural gas "Power House" when the deal closes in Q3.

The global oil market is now rapidly moving back into balance. Non-OPEC oil production is declining by approximately 200,000 bbls per day month-after-month. Iraq, Libya, Nigeria and Venezuela are on decline because they are flat broke and their governments are in danger of loosing control. Iranian production is back up to pre-sanction levels, but over-all OPEC production has probably peaked. On the demand side, we are now beginning the annual summer spike in demand for refined products. IEA forecasts that demand will increase by 1.6 million barrels per day during the six months ending 9-30-2016. I expect each monthly IEA Oil Market Report to get more bullish as we move through the year. I firmly believe they have been understating demand growth. They hinted at the flaw in their forecasting method in the May report.
See summary of the IEA report at: https://www.iea.org/oilmarketreport/omrpublic/

SM Energy (SM) announced an aggressive marketing plan for June. They will be speaking at six energy conferences in June. You may recall that when they did this in March the share price really took off. I think this "road trip" will move the share price toward my valuation of $48.00. SM is still trading at less than 4X operating cash flow per year based on my 2016 forecast model (which you can find on the EPG website). That is a very low multiple for a company of this size and quality.

Newfield Exploration (NFX) is my top pick for the STACK play. They will be selling some non-core assets to focus even more attention on STACK. If you have not watched our video on STACK, here is the link. http://digitalgate.tv/EPG-NavPort%20Pre ... y2016.html

CLR, DVN, NFX and XEC all have significant leasehold positions in SCOOP and STACK. If you are not aware of what is happening in these Central Oklahoma oil plays, you need to educate yourself. Start by watching the video above and then read our profiles on these companies.

PDC Energy (PDCE) is one of the top companies in the Niobrara and Codell horizontal oil play in Colorado. Buy it on dips under $60. Synergy Energy (SYRG) also looks very strong. Stifel recently published an update on Synergy with a price target of $10/share, which is my valuation as well. We recently published profiles on both companies, which you can download from the EPG website.

Last week I increased my valuation of Diamondback Energy (FANG) by $13/share to $99.00. First Call's price target is $95.50. I was not giving enough value to their 88% ownership of Viper Energy Partners LP (VNOM). We also cover Viper in our updated profile on Diamondback.

Devon Energy (DVN) and Noble Energy (NBL) are beginning to draw more attention. I look for them to catch up to the pack as we move through the year.

We will publish update profiles on Carrizo Oil & Gas (CRZO) and Devon Energy (DVN) this week. The intern assigned to those two had other commitments, so I have assigned them to Steven. I am "blessed" to have a fine group of interns.

The Memorial Day holiday is one of my favorites. Remember that the fine men and women in our military do protect us and allow us to have the greatest country on earth. There is a reason we have so many people trying to immigrate to the United States.

[dan_s]

Steven finished up the profiles on CRZO and DVN this morning. We will send out updated profiles tomorrow.

My valuations:
CRZO = $51.50
DVN = $43.50

Carrizo, like SM Energy, is going to be presenting at several important energy conferences in June. They have an impressive story, which could draw a lot more Wall Street attention.

Devon has a webcast of their most recent conference presentation on their website. If you listen to it and follow along on the slides, I think you will see why I am bullish on this large-cap. If they are successful in getting over $2 Billion from their asset sales, I will be raising my valuation to around $50/share. BTW I just found out this morning that Devon has 32% working interest in that record setting STACK well that CLR announced on May 17. Devon has identified 1,600 horizontal well locations in the over-pressured STACK. The economics on those wells at $50 oil are VERY STRONG. EUR's per well are 1.5 to 2.0 million boe with completed well costs in the $8-$9 million range. Do the math assuming they net around $40 per boe and you will get the picture.

An updated Sweet 16 Summary Spreadsheet, with my valuations and First Call's price targets for each stock, will be posted to the EPG website by Sunday.