Sweet 16 Update - October 28

[dan_s]

A pleasant surprise has been that all of the companies that have reported Q3 results so far have reported realized NGL prices much higher than what I had in my forecast models.

From RRC: "Range is also well-positioned to benefit from the improving NGL macro environment. The Company reported NGL pre-hedge pricing improved to 35% of WTI in the third quarter, compared to 25% of WTI a year ago. This substantial improvement in NGL pricing realizations was led by propane, which achieved multi-year highs in September. As the only producer with propane capacity on Mariner East 1, Range has been able to capture above Mont Belvieu prices by exporting the majority of its propane to international markets since early 2016. As a result of Range’s projects currently in place, and improving NGL market fundamentals, Range expects fourth quarter 2017 pre-hedge NGL differentials to be approximately 35% of WTI. Based on current strip prices, Range anticipates pre-hedge NGL realizations of 30% to 32% of WTI in 2018."

A cold start to the winter heating season is also very bullish for NGL prices, primarily because it creates a lot of demand in the Midwest for propane.

It is very important to know the production mix of the upstream companies you own. We break out production by oil, natural gas and NGLs at the bottom of each forecast model.

The Sweet 16 came back strong on Friday, but was basically flat for the week. Nine of them moved slightly higher.

Overall the Sweet 16 is down 24% year-to-date despite the fact that they are all in much better shape today than they were at the end of 2016. The portfolio is trading at a 64% discount to my valuations which are based on forecast models that assume $50/bbl WTI and $3.00/Mcf Henry Hub for all future periods.

We will be publishing an updated profile on Range Resources (RRC) on Sunday. Third quarter results were a bit disappointing, but the outlook has improved. Within a few months, Range will gain access to much better markets for their production as new pipelines open up. So, at the same time that the physical markets for natural gas and NGLs are improving, Range expects their differentials to index prices to shrink. Result is higher realized prices / more revenues.

Improving transportation systems in the Marcellus/Utica will also benefit Antero Resources (AR) and Gulfport Energy (GPOR).

Sweet expected to report 3rd quarter financial results next week:
Antero Resources (AR)
Concho Resources (CXO)
Devon Energy (DVN)
EOG Resources (EOG)
Newfield Exploration (NFX)
Pioneer Natural Resources (PXD)
RSP Permian (RSPP)

Susan demanded that we take a short trip to Lake Charles (she didn't need to hold a gun to my head), so I will be out of the office Sunday until late Tuesday afternoon. I will have a lot of forecast models to update when I get back.