Sweet 16 Update - March 7

[dan_s]

The Sweet 16 is now down 50.25% YTD, trading at a 215% discount to my valuation and 162% discount to First Call's price targets.

Only EOG, PXD and SOI are trading above book value. Considering how conservative GAAP accounting rules are for upstream companies, a "Going Concern" upstream company should never trade below book value. Since we just sent out an updated profile on Callon Petroleum (CPE) I will use it as an example of how insane the current share prices are.

Callon's GAAP Net Income was $1.32/share in 2018 and $0.29/share in 2019. More important, cash flow from operations was $1.85/share in 2018 and $1.80/share in 2019.
Production growth was 25.7% year-over-year in 2019 and based on their guidance should be over 180% YOY in 2020, primarily because of the merger with Carrizo.
They have over 70% of Q1 and 60% of 2020 oil hedged at more than $55/bbl + their Eagle Ford oil sells at a premium to WTI prices.
> First Call's forecast for 2020 is that CPE will generate $1.11 EPS and $3.03 operating cash flow per share.
> Base on my forecast: Even if WTI averages $40/bbl all year, CPE should generate $0.80 EPS and over $1 Billion of operating cash flow ($2.54 per share) this year.
CPE closed at $1.30 on March 6. It's market cap of $516 million compares to its book value of $3,223 million. < Keep in mind that the 12/31/2019 balance sheet was just audited and confirmed as valid by Grant Thornton, a respected CPA firm.

Earthstone Energy (ESTE) and Talos Energy (TALO) are the only two that have not yet released 4th quarter results. All of the other 14 forecast models have been updated and all of the profiles should be updated by mid-March.

Continental Resources (CLR) is the only one that doesn't have any oil hedged.

The Sweet 16 main spread sheet will be posted to the EPG website late today. So far, First Call's price targets haven't moved much in response the roller coaster ride the markets have been on.

Profiles have been updated for: CPE, XEC, FANG, OAS, OVV, PXD and RRC
Profiles waiting on my final review that will be sent out Monday or Tuesday: CLR, PDCE, SOI
Profiles assigned to our MBA's: ESTE, CXO, EOG, MTDR, PE, TALO

I will get all of the forecast models for the Small-Cap and High Yield portfolio companies updated by Monday if they have released Q4 results.

I will be travelling next week and in Dallas for our luncheon on Thursday, March 12.