Sweet 16 Update - January 13

[dan_s]

I just received my January issue of the Energy Investor newsletter. Matador Resources (MTDR) and Diamondback Energy (FANG) are Keith Kohl's top two picks for 2018. MTDR is the newest member of our Sweet 16. It was added 1-1-2018 after spending three years in our Small-Cap Growth Portfolio. It replaces Carrizo Oil & Gas (CRZO), which I still think is a potential double for us this year. CRZO was moved to our Small-Cap Growth Portfolio just because MTDR is larger.

The Sweet 16 is up 5.48% YTD and First Call's price targets continue to drift toward my valuations (based on $50 WTI and $3.00 HH natural gas). In early February, I will adjust the oil and gas prices used in my forecast/valuation models. The Sweet 16 close 1/12/2018 42.4% below my valuation, so this party is just getting started. The "2nd Inning" of the Rebound Phase can be the most profitable.

Newfield Exploration (NFX) is off to a great start, up 10.2% YTD. Parsley Energy (PE) is down 1.1%, but I see no reason why it should be trailing the pack.

Our three gassers (AR, GPOR and RRC) got a nice boost on Thursday when EIA reported the largest draw from U.S. natural gas storage in the history of the world. The draw of 359 Bcf for the week ending 1/5/2018 crushed the old record of 288 Bcf set in January, 2014. The February NYMEX contract for natural gas closed at $3.208/MMBtu on 1/12/2018. It helps that Winter Storm Hunter is sucking even more gas out of storage.

WTI closed at $64.40/bbl on Friday, January 12. As I mentioned in several of my recent podcasts, the last significant resistance level was $62.50. The next one is $70.00/bbl.

The Sweet 16 is heavily weighted to companies that get most of their revenues by selling liquids. Your own portfolio should be weighted the same. In addition to rising crude oil prices, NGL prices are also moving higher. Very cold weather in the Midwest has drained propane inventories and industrial demand for other NGLs is going up, up, up. You can find the production mix for each company at the bottom of the individual company forecast/valuation models.

Last week (ending 1/12/2018) I focused on getting all of our Small-Cap Growth Portfolio companies' forecast/valuation models updated. Note that I have decided to drop Jones Energy (JONE) since I cannot figure out what that management team is doing. The numbers look good, but there is something going on over there and we don't need to mess with it.

I will send out my next podcast on Saturday.

I hope to see many of you at our luncheons in Houston and Dallas this coming week.

[dan_s]

An updated Sweet 16 spreadsheet will be posted to the EPG this afternoon. It shows my updated valuation for each company compared to First Call's current price target.

Just remember that First Call price targets are averages of some old forecasts submitted to Reuters. Some are six months old, so they are based on oil prices much lower than we have today. One our two low price targets submitted to Reuters can have a big impact on the smaller companies because they don't have as much coverage as the Elite Eight.

The Sweet 16 Group closed Friday, January 12, 2018 13.8% below the First Call price targets and 42.4% below my valuations that are based on $50.00 WTI and $3.00 HH gas.