Our Next Newsletter

[dan_s]

I am working on the newsletter now and I will put the finishing touches on it Saturday. My goal is to publish it on Sunday.

Part of my newsletter process is going over each forecast model for the Sweet 16 and the other companies in the model portfolios. If there are any significant changes, I post the updated forecast model spreadsheets to the EPG website. You can see the forecasts that I've updated today on the Home Page. You can find the current forecast model for any profile company by clicking on the Sweet 16, Small-Cap or MLP tabs.

I'm pleased to report that First Call's forecasts for revenue, earnings per share and operating cash flow per share have moved close to my forecasts. I update my forecasts as soon as I can after the companies release quarterly results. It often takes First Call three or four weeks to update their numbers. I do show First Call numbers on each forecast spreadsheet.

BTW several Wall Street analysts are EPG members and I know they check my forecasts carefully.

GAAP/SEC accounting rules are complex for upstream companies and (IMO) they are very confusing for most investors. This is why "Adjusted Earnings" was invented by Wall Street. "Adjusted Earnings" do not include non-cash income and expense items like "mark-to-market adjustments on hedges" and "impairment". They also do not include one time items like gains and losses on hedges. Reported Earnings are almost meaningless for upstream companies, which is why I value companies based on operating cash flow per share. "Cash pays the bills, not earnings".

On each forecast/valuation model, I show First Call's forecasts for cash flow from operations in a RED BOX, so you can easily find them and compare them to my CFPS forecasts for each period. What you'll find is that for most of the companies, my forecasts for cash flow are quite close to what FC shows.

The analysts that provide forecasts to Reuters / First Call are forced to use the commodity price forecasts of their individual firms. Some of them do not take hedges into consideration. Some of them also consider dividends on preferred stock an expense (like interest expense). Some of them use cash flow before changes in current assets and liabilities and some don't ( I don't). I have a masters degree in accounting and I have been looking at oil & gas company financial statements for almost 40 years. Financial statements are confusing to anyone not trained in this stuff, so I am just trying to make the forecast models as simple to understand as I can.

MOST IMPORTANT: 100% of our model portfolio companies are generating solid cash flow from operations at today's oil, gas and NGL prices. All of them are in better shape today than they were a year ago. You certainly would not know that by looking at the stock price charts. FEAR has depressed oil prices this year and the share prices of some very good companies. IMO we are in the "coiled spring" part of this cycle. All that needs to happen for share prices to go up is for fears to subside. U.S. and OECD oil inventories have been falling since March and I believe they will keep falling through year-end. In each cycle, the "Glut Fears" turn into "Shortage Fears". That is when the fun begins.