Sweet 16 Update - March 12

[dan_s]

Later today the Sweet 16 main spreadsheet will be posted to the EPG website. You will be able to view it and download it directly from the home page. Make sure you are looking at the one that is dated 3/12/2022. The spreadsheet shows my valuation for each company compared to First Call's price targets. Valuations for each company are drifting higher.

So far I have only updated 7 of the valuations for the higher oil and gas prices that I will be using going forward ($100/bbl WTI and $4.25/mcf HH gas). Under tab 2 of the Excel spreadsheet the valuations highlighted in yellow are the ones that I have updated.
I should have them all updated in a few days and then I will repost the summary spreadsheet.

During the week ending March 11th the Sweet 16 declined by 4.2%, but it is still up 30.25% YTD.
This compares to the S&P 500 Index that declined by 2.61% during the week and is down 11.79% YTD. This has been a tough start for the overall market, thanks to all of the geopolitical noise and belief that the Fed will raise interest rates in an attempt to slow inflation. IMO we are in a "Commodity Super Cycle" that will last for many years, so we should all count on a lot more inflation. Investing in oil and strategic metals seem to be the best way to offset inflation.

All of the 16 companies reported strong Q4 results and big increases in the PV-10 value of their proved reserves, which are based on SEC guidelines that require them to use the previous 12 months commodity prices, less than $65/bbl for oil. Using current commodity prices, all 16 companies are trading at a discount to their net asset valuations.

Leading the pack are two of our gassers:
> Range Resources (RRC) is up 54.4% YTD at $27.53 and my valuation is $40.00
> Antero Resources (AR) is up 52.4 % YTD at $26.67 and my valuation is $34.00 < I still need to update AR's valuation.
> Matador Resources (MTDR) is up 44.28% at $53.27 and my valuation is $80.00

Comstock Resources (CRK) has moved out of last place. It is up $17.8% YTD at $9.53 and still has a long way to go to get to valuation of $21.00.

Earthstone Energy (ESTE) is in last place, up 15.08% YTD at $12.59. See my previous post.
ESTE has a lot of upside for us. My valuation is $33.00 per share. It is a company "in transition" with two large acquisitions, Chisholm that closed Feb 15 and BidHorn that is expected to close by April 15. These two deals will more than double Earthstone's daily production rate and add over 400 low-risk / high-return horizontal drilling locations in the Permian Basin. The Company plans to run four operated drilling rigs all year. On a percentage of production basis, Earthstone should be the Sweet 16's fastest growing company this year. Their production was up 62.2% YOY in 2021 and their guidance is for ~167% YOY production growth in 2022. There were several Wall Street analysts on their Q4 conference call and I expect them to upgrade the stock this coming week. ESTE is currently my Top Pick in the Sweet 16.

We sent out updated profiles on EOG Resources (EOG) and Ovintiv (OVV) Saturday morning. These two "Elite Eight" companies pay dividends and they both have lots of running room.

I still have four profiles that I need to update (CTRA, NOG, PDCE and ESTE). I hope to get them all finished by Tuesday.

My weekly podcast will be posted to the EPG website late this afternoon.

[willvanam]

Thanks Dan appreciate your updates and conviction. I started buying ESTE on the close friday. Hope it goes lower

[dan_s]

TipRanks: "Alliance Global Partners analyst Jeffrey Campbell raised the firm's price target on Earthstone Energy to $33 from $28 and keeps a Buy rating on the shares based on a revised 2023 EBITDA estimate of $1.09B after the company recently announced the acquisition of privately held Bighorn Permian Resources. The Bighorn acquisition accelerates Earthstone's progression toward capital returns to shareholders, argues Campbell."

EBITDA from my forecast model:
> 2022: $924.1 million < If WTI averages $100/bbl this year
> 2023: $1,165.9 million < If WTI averages $90/bbl next year.