Sweet 16 Update - April 8

[dan_s]

It was a roller coaster week for the stock market and the Sweet 16 finished just about were it started the week, up exactly 0.01% for the week. The Sweet 16 is down 6.68% YTD. Q1 results should be better than Q4 results, which should draw some attention. I still think we see a lot of money rotate into the energy sector this month. Trump's bombing of Syria made some people nervous today. BTW it has been confirmed that Assad has killed over 500,000 of his own citizens during this long civil war. All war sucks and this is a really bad one.

The S&P 500 Index was down 0.33% for the week, but is still up 5.21% YTD.

Very little movement in the First Call price targets for the Sweet 16 last week. FC price targets are usually below my valuations. Parsley Energy (PE) is the only company where the FC price target is slightly above my valuation. My valuations assume oil moves to $55 in Q2, $57.50 in Q3 and $60 in Q4.

As I said in my podcast yesterday, Morgan Stanley now forecasts WTI moves to $62.50 by Q4, so I'm not way out there with my oil price forecast. If OPEC extends their production agreement, I think the oil price will move quickly to $60/bbl. Global inventories of liquids are now falling fast.

I am probably more bullish on natural gas and NGL than what most Wall Street firms are using, although the prices I'm using for natural gas are now slightly below the strip.

I got a report today that shows STACK extended reach laterals (over 7,500 ft) in the over-pressured part of the play have the best well-level economics with breakeven at WTI $36/Bbl. Permian Basin Sprayberry and Wolfcamp are next with breakeven in the $40 to $45 range. I was surprised to see the "Bakken Core Area" was next with breakeven at $46/bbl. I have recently added former Sweet 16 member Oasis Petroleum (OAS) to my Watch List. Just need to find some time to take a hard look at it.

CLR, DVN, NFX and XEC all own a lot of STACK. CLR and DVN have reported incredible well results in the over-pressured area of STACK. Well results get better each quarter.

As I pointed out in the newsletter, which I hope you all read carefully, all of our Small-Cap Growth Portfolio companies really look good to me. Callon Petroleum (CPE) and Carrizo Oil & Gas (CRZO) were officially moved into the Sweet 16 on April 1st, but several more deserve promotion. Jones Energy (JONE) has the most risk, but also has the most upside. Lonestar Resources (LONE) and Sanchez Energy (SN) should be doubles for us if their actual production comes close to what I'm using in the forecast model. Sanchez has a good chance of getting promoted to the Sweet 16 on July 1st.

Lonestar Resources is hosting our luncheon in Dallas on Wednesday, April 12. PLEASE register today if you plan to attend. Lonestar's production s/b up 50% this year.

By the end of April we should know if OPEC is going to extend their production quota agreement. I think they will, but you never know with that group. My advice to OPEC (if they ask me) is that they extend the agreement but raise their quotas around 500,000 BOPD. Demand for refined products, most of which come from crude oil, is expected to increase by 2,000,0000 barrels per day from Q1 to Q4 this year. [Go to slide 7 of my podcast and you will see that demand increased by 2,140,000 barrels per day from Q1 2016 to Q4 2016.]

The IEA's next "Oil Market Report" should include a lot of good information. It is expected to be published on April 17th.
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Susan (EVP / Cruise Director) and I may soon be called to Dallas for the arrival of "Baby Drake", our oldest son's first daughter and our first American granddaughter. We have two granddaughters living in Iceland.