Sweet 16 Update - July 20

[dan_s]

9 of 16 companies in the Sweet 16 are now trading below book value.

Gulfport Energy (GPOR) which announced Q2 production above guidance is now trading below 1X operating cash flow per share. I cannot remember a Sweet 16 company EVER trading below 1X CFPS. Plus, GPOR reported Q1 EPS of $0.39 and they should report Q2 GAAP EPS over $1.00. GPOR is on-track to generated over $50 million of free cash flow from operations. ~98% of their 2019 natural gas for 2H2019 is hedged at $2.81/mcf.

I also took a hard look at Antero Resources (AR) today. With 100% of their gas hedged at good prices, it will also report a BIG mark-to-market gain on their hedges and it is also on-track to generate over $4.00 operating cash flow per share this year.

The 12 non-gassers should all report higher earnings and cash flow in Q2 than in Q1 because WTI averaged $4.40/bbl higher in Q2.

Range Resources (RRC) will be the first company to report actual Q2 results on July 25.

Big news this week is the "Merger of Equals", with Callon Petroleum (CPE) merging with Carrizo Oil & Gas (CRZO). This is an all-stock merger with CPE being the surviving company. Post-merger CPE will have production over 100,000 BOE per day and 10% to15% annual production growth locked in. I plan to work up a proforma forecast model for CPE this weekend.

Unless you believe that WTI is going sub-$50/bbl and going to stay below $50 FOREVER, there is no way to justify the current share prices for any of these companies. Keep in mind that my valuations are all based on WTI averaging $55/bbl in Q3. With all the gloom & doom, WTI closed at $55.74 on July 19.

All eyes will be on the situation with Iran this weekend. If Iran doesn't release the British tanker by Monday, my bet is that plans for an air strike will be made. Iran's usual crap is not going to work with Trump and the Brits have two warships in the Persian Gulf region already.

Lots of companies do report operations updates before they report financial results for a quarter. Today, I updated the forecast models for GPOR, REI and SM based on their operations and production updates.

My weekly podcast will be posted to the EPG website on Saturday afternoon.