Sweet 16 Update - Nov 3

[dan_s]

During the week ending November 2, 2018 the Sweet 16 moved 0.5% lower and is now down 13.84% YTD. All 16 companies are in the RED despite solid results YTD and much higher oil, gas and NGL prices than we had ten months ago. This has been a weird year.

9 of the 16 companies have released Q3 results (AR, CXO, CLR, EOG, GPOR, MTDR, NFX, PE and RRC). Antero Resources (AR) is the only one that came up a bit short to my forecast.

EnCana (ECA) announced a merger with Newfield Exploration (NFX) that makes a lot of sense, but may get some pushback from the Newfield shareholders. If EnCana is able to close the deal, it will create a Power House company that definitely is a candidate for the Sweet 16 in 2019. EnCana was in the Sweet 16 about 8 years ago.

West Texas Intermediate (WTI) closed under $63/bbl on Friday. Traders reacted to a list of waivers from the U.S. sanctions against Iran. I think the oil markets will rebound when they see details of the waivers, which the State Department is now saying will only be temporary as they expect all countries to work quickly toward cutting off all imports of oil from Iran.

If the GOP retains control of the House and/or the Senate, I expect the oil market to rebound. If the Democrats win we loose because there will be a lot of uncertainty especially if they start talking about reversing the GOP Tax Cuts and starting impeachment proceedings against Trump. Whatever you think of Trump, his policies have definitely helped the U.S. economy and put a lot of people back to work.

People tend to forget that September & October are soft periods for oil demand. In November and December demand for home heating oil will pick up and we should see more refiners come out of the maintenance period. If refinery utilization gets back over 90%, we should see steady draws from crude oil inventory again. Last week's EIA storage report shows that demand for refined products remains high. Distillate inventories are dangerously low for this time of year.

There are only three more weeks left in the natural gas refill season and my guess that we'd begin the winter with storage 600 Bcf below the 5-year average is beginning to look too conservative. We may be closer to 650 Bcf below the 5-year average inventory level on November 16th, the end of the refill season.

In the 3rd quarter reports one of the most pleasant surprises has been the increase in realized NGL prices; up about $3/bbl across the board.

The most impressive Q3 results so far have come from Parsley Energy (PE). The only valuation that I have lowered is NFX because of the merger with EnCana.

My top priority is updating the Sweet 16 forecast/valuation models as soon as I can. I will update the models for our Small-Cap Growth Portfolio and High Yield Portfolio companies as fast as I can fit them in. That's what I will be working on all weekend. We will sent out a few Sweet 16 profile updates next week.

Next week should be very interesting. I will be in Dallas at the Doubletree Hotel on Wednesday, Nov. 7 and at the Hess Club on Thursday, Nov. 8.