Sweet 16 Update - April 1

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dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

Sweet 16 Update - April 1

Post by dan_s »

All of my Sweet 16 stock valuation have been updated based on the following oil & gas price assumptions:
2023 oil price / ngas price
Q1: $75 / $2.50 < Actual average prices for WTI and HH gas should be a bit higher.
Q2: $75 / $2.25
Q3: $80 / $2.50
Q4: $90 / $2.75
Year 2024: $90 / $3.50
You can find the updated forecast/valuation model for each company under the Sweet 16 tab on the EPG website. You must first login as an EPG member to see the "Good Stuff" on our website.

For the week ending March 31st, the Sweet 16 gained 6.06%, but the portfolio is still down 10.61% YTD. As of 3/31/2023 the portfolio is trading at an 84.23% discount to my adjusted valuation.
For the week, the S&P 500 Index gained 3.61% and is now up 7.03% YTD.

Fear of a recession seems to be fading a bit. Also keep in mind that the Energy Sector was the top performer in the overall market in 2022 while the S&P 500 Index lost 19.44% last year. Some profit taking and rotation is to be expected at the beginning of each year.
For the two years ending 12-31-2022 our current Sweet 16 stocks (now including EOG) gained 263.7%.

What jumps out at me this morning is that three of the five companies that are trading at less than 50% of my updated valuations (CPE, SBOW and VTLE) are (based on my forecasts) expected to be the most profitable companies during 2023 on a per-share basis. One reason could be that they do not currently pay dividends. The revenues of CPE and VTLE are heavily weighted to crude oil sales. SBOW trades at the deepest discount to my valuation ($78/share) and its guidance is for ~24% YOY production growth in 2023.

Permian Resources (PR) and Range Resources (RRC) are the only two Sweet 16 stocks up YTD. RRC closed on Friday at just 9.6% below my current valuation of $29.00 per share. My valuation of PR is $15.50, but if their actual Q1 results beat my forecast (likely since PR management likes to "under-promise and over-deliver" on guidance), my valuation may be going over $20/share. PR reminds me a lot of FANG, one of the best picks that I have ever made.

The updated Sweet 16 summary spreadsheet will be posted to the EPG website this afternoon.
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

Re: Sweet 16 Update - April 1

Post by dan_s »

For those of you invested in the gassers:

The real world natural gas market will adjust:
The large “gassers” (AR, CRK, EQT and RRC) will delay well completions, the Freeport LNG export facility (~2 Bcfpd) is back on-line and “low gas prices, cure low prices” because we will see coal-to-gas fuel switching for power generation this summer.

Here is where the NYMEX strip prices closed on March 31st:
• MAY23 > $2.166
• JUN 23 > $2.416
• Q3 2023 > $2.71
• Q4 2023 > $3.23
• Q1 2024 > $3.72

Fun Fact to consider: Demand for U.S. natural gas is “seasonal”, increasing significantly for space heating in December through March. Over the last 25 years there have been ten natural gas price spikes in the U.S. market over $6.00/MMBtu and eight of the ten price spikes occurred outside of the winter months. All of the price spikes over $6.00 during 2021 and 2022 were outside of the winter months. Trying to time the U.S. natural gas market is difficult if not impossible.
Dan Steffens
Energy Prospectus Group
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