Sweet 16 Update - Sept 16

[dan_s]

I have updated the main Sweet 16 spreadsheet and it will be on the EPG website on Saturday morning.

It was a good week, but we need a lot more. The Sweet 16 was up 5.7% during the week ending 9/15/2017, but it is still down 27.71% year-to-date. The portfolio is trading at a 75% discount to my updated valuations.

"Oil Cycles end when Wall Street decides to end them". It is starting to feel like the Wall Street Gang is ready to end this one, but we won't know for sure until we get several WTI closes over $50/bbl. It traded over $50 for a few minutes on Thursday and Friday.

Two hurricanes and unusually mild weather in the first half of September have definitely messed up the energy sector. It will take awhile before this stuff all sorts out, but in the long-run it is just a blip in the steadily increasing demand for more energy. IEA's "Oil Market Report" was like an early Christmas Present. IEA’s estimate of global oil demand is now 97.7 million b/d for 2017. Its forecast for 2018 is 99.1 million b/d. Before the end of 2019 this world will be consuming over 100,000,000 barrels of oil per day.

The "Wall Street Gang" usually begins the paradigm shift by sprinkling in words like "regional shortages". They gradually stop using the "glut" word, which at this point is comical. OECD crude oil inventories have fallen over 100 million barrels and they are on steady decline. The U.S. has less than 30 days supply of oil in inventory. The U.S. economy would collapse if we had rolling shortages of gasoline and diesel, so we need a steady flow of these critical products.

Our three "gassers" (AR, GPOR and RRC) are beginning to draw some attention, but the hurricanes and a very mild first half of September haven't helped.

Carrizo Oil & Gas (CRZO) is the smallest company in the Sweet 16 and it trades at the largest discount to my valuation ($45.00). The company is going to report solid earnings and cash flow per share (over $5/share). They sold their Utica Shale assets and they have opened a data room to sell their DJ Basin assets. Sales proceeds will be used to ramp up production and proven reserves in the Permian Basin. Most of their production (~53,000 Boe per day) comes from the Eagle Ford today.