Encana Corp. (ECA) is being added to the Sweet 16 Growth Portfolio effective 5-18-2019. It replaces Centennial Resource Development (CDEV), which is just being moved back to the Small-Cap Growth Portfolio. It is always tough to decide which company to take out when I make an addition. Of the smaller companies, CDEV was trading the closest to my valuation. There is nothing wrong with CDEV and it has a lot of upside for us.
Our profile for ECA will be sent out this weekend.
The Sweet 16 is up 12% YTD, but still trades at a 96% discount to my valuation. The only reasonable explanation is that investors are totally confused by all the "noise" that is pushing and pulling oil prices around. The U.S. vs China "Tariff War" is the biggest roadblock. The "gassers" are even more out of favor than the oil companies. There are oil supply risks in Iran, Venezuela and Libya. As I told you in last weekends podcast, there is NO CHANCE that OPEC can quickly ramp up production to what they produced in Q4 2018 unless the U.S. drops all sanctions against Iran and Venezuela. Plus, we are just beginning the summer demand spike for oil.
The updated Sweet 16 spreadsheet will be posted to the EPG website later today. It shows my valuation of each company's stock compared to First Call's price target. Keep in mind that First Call's price targets still include lots of analysts valuations that are quite old and based on much lower oil prices than we have today.
On tab 1 of the spreadsheet you can see each companies' market cap compared to book value as of 3-31-2019. Note that six of the companies are trading below book value. Upstream oil & gas companies should never trade below book value. That is because SEC accounting rules require upstream companies to writedown their assets if NPV is lower than book value. Plus, all upstream companies deplete their oil & gas assets using the "Units of Production" method which is based on Proved Reserves (P1). Basically no value is given to probable (P2) and possible (P3) reserves, which in the shale plays are very close to P1. The fact is that as upstream companies drill more wells their leasehold becomes more valuable because it is now held by production ("HBP"). Upstream companies with lots of HBP acreage are attractive takeover targets.
I still owe you update profiles on EOG, MTDR and PE. I promise to finish them next week.
Sitting here for my final review are update profiles for MTDR, JAG, OAS, IPOOF, GDP, ESTE, LONE, SRCI and CHAP.
The CEO of InPlay Oil (IPOOF) will be speaking at our luncheons in Houston on May 20 and Dallas on May 21. Please register if you wish to attend one of the luncheons.
Sweet 16 Update - May 18
Sweet 16 Update - May 18
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Sweet 16 Update - May 18
OPECs Spare Capacity Could Be Put To The Test
"In fact, it is largely expected that production in both Iran and Venezuela are set for additional declines, leaving Saudi Arabia as the only likely member that has the ability to increase production in the short term should another unexpected supply outage take place. According to Energy Aspects geopolitical analyst Riccardo Fabiani, cited by Reuters, Iran may lose yet another 500,000 bpd by year’s end. Goldman Sachs, according to Reuters, forecasts that Iran’s oil exports will settle between 400,000 and 900,000 bpd lower than April levels exports of 1,200,000 bpd, which compares to their total production of are near 2.5 million bpd.
Even Russia, who has finally lowered its production to the level it agreed to as part of its collaborative efforts to rebalance the oil market, is unlikely to have enough spare capacity to offset further supply disruptions if there are any."
Read More: https://oilprice.com/Energy/Crude-Oil/O ... -Test.html
"In fact, it is largely expected that production in both Iran and Venezuela are set for additional declines, leaving Saudi Arabia as the only likely member that has the ability to increase production in the short term should another unexpected supply outage take place. According to Energy Aspects geopolitical analyst Riccardo Fabiani, cited by Reuters, Iran may lose yet another 500,000 bpd by year’s end. Goldman Sachs, according to Reuters, forecasts that Iran’s oil exports will settle between 400,000 and 900,000 bpd lower than April levels exports of 1,200,000 bpd, which compares to their total production of are near 2.5 million bpd.
Even Russia, who has finally lowered its production to the level it agreed to as part of its collaborative efforts to rebalance the oil market, is unlikely to have enough spare capacity to offset further supply disruptions if there are any."
Read More: https://oilprice.com/Energy/Crude-Oil/O ... -Test.html
Last edited by dan_s on Sat May 18, 2019 6:11 pm, edited 1 time in total.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Sweet 16 Update - May 18
In its May 2019 edition of the Short-Term Energy Outlook (STEO), EIA revised its price forecast for Brent crude oil upward, reflecting price increases in recent months, more recent data, and changing expectations of global oil markets. Several supply constraints have caused oil markets to be generally tighter and oil prices to be higher so far in 2019 than previous STEOs expected.
Read more: https://www.eia.gov/todayinenergy/detail.php?id=39452
Read more: https://www.eia.gov/todayinenergy/detail.php?id=39452
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group