Sweet 16 Update - March 18

[dan_s]

The Sweet 16 was up 0.82% for the week ending March 17, but it is still down 10.91% year-to-date. The S&P 500 Index moved 0.25% higher and is now up 6.23% YTD, which is rather impressive considering the Fed's decision to raise interest rates and a clear indication they plan to raise rates at least once and probably twice again this year.

My "gut" tells me that the sell-off of the upstream oil & gas companies the week before was overdone and probably got all of the weak hands out of the sector.

Keep in mind that Q1 2017 results are going to be MUCH BETTER than Q1 2016 results. Q1 2016 oil, natural gas and NGL prices were terrible.

All three of our "gassers" (AR, GPOR and RRC) pulled back slightly last week, but next week's ngas storage report will show a draw way over the 5-year average. Unless winter drags on into April, ending storage will be above 2,000 Bcf but way below where we ended up last year. Supply/Demand for ngas and NGLs is going to be a heck of a lot tighter this year than it was last year. Ironically, it will be this summer when the tightness becomes clear to the market.

I will finish up the profile on RSP Permian (RSPP) on Saturday.

We are now far enough past Q4 results that the First Call price targets have stabilized. They've all moved closer to my valuations. My valuations are what I think each company's break-up value is today, which is a bit different than a price target.

Only two of the Sweet 16 are up YTD, Diamondback Energy (FANG) and Pioneer Natural Resources (PXD). Yes, they are both pure plays on the Permian Basin, but so are CXO, PE and RSPP.

You can find my valuations and First Call's price targets for each company on the Sweet 16 spreadsheet. I update it each weekend. You can view it on the EPG website or download it to Excel.

[dan_s]

I have updated by forecast model for RSP Permian (RSPP) and completed my review of the company profile, which we will send out by e-mail late today or on Sunday. Scott, one of our most experienced interns did a great job on the profile. Scott graduated from SMU with an MBA a couple years ago, so he really isn't an "intern". He has been helping me with the profiles for over three years and he is a valuable asset for us.

I have "tweaked" my RSPP forecast, lowering my valuation by $2.00/share to $60.00. This compares to First Call's price target of $53.15/share. All I did was adjust the production mix and lower the forecast oil price a few dollars. I remain extremely bullish on this company since it is hard to find growth like this.

RSPP's production was 35,793 Boe per day in the 4th quarter. Completion of the acquisitions of both Silver Hills Energy Partners I & II pushes production over 50,000 Boepd in March and production should average close to 54,000 Boepd in the 2nd quarter. Production growth will accelerate in the 2nd half of this year as they ramp up from a four rig drilling program today to an eight rig program by year-end.

RSPP is an "Aggressive Growth" company that compares to Diamondback Energy (FANG) and Parsley Energy (PE), yet it trades at a lower multiple of operating cash flow per share.

Read the profile when it arrives in your in-box, then go to the company's website to carefully review their most recent presentation. It will also educate you on the Permian Basin.