Sweet 16 Update - April 22

[dan_s]

The Sweet 16% was down another 3.1% for the week ending 4/21/2017 and the portfolio is now down 14.58% year-to-date. The S&P 500 Index was up 0.88% on the week and is now up 4.91% YTD.

Gulfport Energy (GPOR) was the only S-16 member that managed a bit of a gain on the week, thanks to a good Q1 operations update. Gulfport went into the Wall Street "penalty box" last fall when analysts thought they paid to much for the SCOOP acquisition they closed last year. I think the penalty is over now. Q1 results should be good and if they report some good SCOOP well results the stock has a lot of upside from here. I have been following Gulfport for about ten years and I have a high level of confidence in their management team. Gulfport's production was up 31.5% YOY in 2016 (to 119,921 BOE per day) and I expect production to increase another 46% in 2017 (to 175,136 BOE per day). Gulfport is heavily weighted to natural gas and NGLs. Higher commodity prices combined with strong production growth should draw more investors to this one. Only ~4% of Gulfport's 2017 production will be crude oil. Credit Suisse has a $33 price target on GPOR.

Range Resources (RRC) is down 20% YTD and I expect them to report outstanding Q1 results and confirm their production guidance for this year of 33% to 35% YOY production growth.

The U.S. markets for natural gas and NGLs looks MUCH BETTER than it did a year ago. There is really no logical explanation why AR, GPOR and RRC are all down YTD.

The two big FEARS this year are that (1) OPEC will not extend their production limiting agreement and (2) that increased drilling in the shale plays will bring on a lot of "associated gas" that will over-supply the U.S. gas market again. I think both of these fears will prove to be over-blown, as most fears are.

Although the rapid increase in "associated gas" did contribute to low ngas prices a year ago, it was the Super El Nino winter of 2015-2016 that caused ngas prices to crater during the first quarter of 2016. The most recent winter was mild, but nothing close to the one before it. Natural gas in storage is way below were it was last year at this time and non-weather related demand is going up by at least 2 Bcf per day each year. LNG exports are going up and so is industrial demand for gas.

All of the Sweet 16 produce a combination of oil, natural gas and NGLs. Much better NGL prices in Q1 should really help year-to-year revenue comparisons. NGL prices in Q1 2016 were terrible; below $10/bbl for some of the companies. NGL prices should work their way back to around 50% of WTI by Q4. Lots of NGL demand coming on-line in 2H 2017.

RRC and Pioneer Natural Resources (PXD) are expected to report Q1 results next week.

Hang tough. WTI is still with a positive technical trading pattern and OPEC has a lot of good reasons to extend the production agreement. The U.S. markets for natural gas and NGLs are much tighter than the Wall Street Gang seems to realize. FEAR and GREED drive the market and investors can go from one to the other quite quickly.

My valuations and First Call's price targets for each company can be found on the Sweet 16 spreadsheet that will be posted to the EPG website this afternoon.

The Interns have gotten ahead of me. New profiles for AM, ENLK, SPP and AREX are sitting here waiting for my review.

[dan_s]

Goldman Sachs Group Inc. says there’s no fundamental evidence in the oil market to justify this week’s selloff in prices.

The bank finds the pace of declines in U.S. crude inventories encouraging, with an acceleration in draw downs expected through the second quarter as OPEC cuts output and demand grows, according to a report dated April 20. Meanwhile, a mid-week slide in prices was driven by crude trading through its 50-day and 100-day moving averages, Goldman said.

You should all read this: http://www.newsmax.com/Finance/StreetTa ... r=u7ah5dgc

[dan_s]

On Saturday I worked on Antero Midstream (AM), one of the midstream MLPs in our High Yield Income Portfolio.

Antero Resources (AR) owns 59% of the publicly traded LP units of AM. At today's unit price for AM, the units owned by AR represent a value of approximately $11.50 per AR share. AR closed at $21.39 on Friday.

AR has more than 100% of its natural gas production for 2017 and 2018 hedged at prices well above the current strip, locking in strong cash flow from operation. My valuation of AR is $54.00/share, but with almost zero commodity price risk, this stock should trading at least close to First Call's price target of $33.15.