Newsletter

[dan_s]

I have moved into "Newsletter Prep Mode". The next edition of The View From Houston will be dated August 28, 2018. If I can finish it this weekend, we will send it out a day early.

Part of my prep work is going over each one of the model portfolio companies' forecast/valuation models (Sweet 16, Small-Cap Growth and High Yield). All of the companies have now released Q2 financial reports (10Q), but we've only finished about half of the profile updates. I am cracking the whip on the MBA's to get their assignments done.

I want to alert you guys to something: The Permian Basin Takeaway Capacity "issue" is a short-term problem, but it will have an impact on several of my stock valuations. This is especially true for the Small-Caps that are pure plays on the Permian Basin (HZ, JAG, LPI, REI and to a less extent CRZO and SM). JAG, CRZO and SM seem to have the issue covered fairly well, but it is difficult for me to get a feel for how much it will impact each company. Actually, I doubt that they even know for sure. So....I've decided to low the multiple of operating cash flow per share that I use to value the Permian companies. This doesn't mean that I lower my long-term outlook for these companies.

In our Sweet 16, the companies with the most exposure to the Permian issue are CPE, CDEV, ESTE, MTDR and XEC. The larger companies have most of their production covered by firm contracts with the midstream companies.

As I posted yesterday, Sanchez Energy (SN) will be dropped from the Small-Cap Growth Portfolio. I see no risk of SN needing to do anything drastic (i.e. - seek Chapter 11 protection). They just need to figure out what to do to get better well results at Comanche and maybe put more focus on Catarina, where they continue to get outstanding results. Just remember that the rising tide of higher oil prices will lift all boats.

Alta Mesa Resources (AMR) and Chaparral Energy (CHAP) are very high on my Watch List, but I want to see at least one more quarter of progress before I put them into the Small-Cap Growth Portfolio.

[dan_s]

I added Oasis Petroleum (OAS) to the Small-Cap Growth Portfolio in the last newsletter. Oasis Midstream Partners LP (OMP) is a candidate for our High Yield Income Portfolio. OAS is a rock solid upstream company that owns 69% controlling interest in OMP. Midstream MLPs with strong GPs like this have done quite well for us.

If you are investing for yield, take a look at OMP's most recent presentation on their website. I think you will be impressed.