Sweet 16 Update - Sept 30

[dan_s]

My updated Sweet 16 summary spreadsheet has been posted to the EPG website. Under Tab 2 it shows my updated current valuation and First Call's price target for each stock. You do have to log on as an EPG member to see it and you can download it to your computer.

At the end of June the Sweet 16 portfolio was down 3.71% YTD and the S&P 500 Index was up 15.91%

The Wall Street Gang is rotating money into the Energy Sector:
For the week ending September 30th the Sweet 16 gained 5.82% and is now up 14.50% year-to-date.
For the week the S&P 500 Index lost 0.84% and is now up 11.68% year-to-date.

2023 is almost identical to 2010 when the Sweet 16 was down at June 30th and finished the year up 54%. During 2010 the Big Paradigm Shift was that the global economy was going to survive the financial crisis of mid-2008 and demand for oil rebounded.
> Oil prices crashed from $147/bbl to under $42/bbl during 2H2008, but rebounded to $90/bbl by the end of 2010.
> Over four years (2011 to mid-2014) WTI traded within a range of $70 to $115. < I believe what's setting up now is that WTI will trade in a range of $85 to $125 for several years.

We still have more "noise" to get past like "Fear of the Fed", the boggyman of a Federal Government shutdown (which everyone knows won't last long) and IEA continuing to under-estimate oil demand.

The current "Big Paradigm Shift" has moved into Phase Two. Most of the Wall Street Gang now believes (rightfully so) that the Green New Deal is not going to reduce oil demand. IMO it has raised demand for oil through at least 2030. The belief that Wind & Solar will replace fossil fuels is a myth no matter how much fairy dust they sprinkle on it.

There is a lot more upside for the Sweet 16:
> It trades at a 52% discount to my valuation, which is based on what now looks like "conservative" oil & gas price assumptions.
> Wall Street Gang price targets are drifting toward my valuations as more and more firms update their oil & gas price decks.
> EOG Resources (EOG), the largest company in the Sweet 16, is down 2.13%. < IMO this is insane because EOG is extremely profitable, has over a decade of high-quality "running room" and controls some of the most valuable real estate on Earth.
> Three others down YTD are CRK, MGY and OVV. < CRK being down is justified only because it is a pure "gasser".
> Four of the Sweet 16 still trade below book value: CPE, CPG, VTLE and SBOW. < No profitable upstream oil & gas company should trade below book value because they are required to mark-to-market adjust (only down) if book value exceeds net present value.

SilverBow Resources (SBOW) is up 26.49% YTD, but it has pulled back recently on profit taking caused by their recent equity offering. Proceeds from the offering will be used to close the Chesapeake South Texas Acquisition, which is a "Game Changer" for this small-cap. I would much rather see these companies us a combination of equity & debt rather than taking on more debt for acquisitions.
> SilverBow's Q2 production was 54,904 Boepd (22.7% crude oil).
> Heading into 2024 the Company's production will be ~100,000 Boepd (28.6% crude oil).
> SilverBow will be the top independent pure play on the Eagle Ford / Austion Chalk play in South Texas.
If natural gas prices move up to $4.00 a year from now, SBOW should be more than a double for us within 12 months from where it closed on Friday.
Conclusion: "Buy the Dip".

Vital Energy (VTLE), which is up 7.78% YTD also pulled back when they announced an equity offering to partially fund a significant acquisition in the Permian Basin. Vital has been and should continue to be the most profitable Sweet 16 company on a per share basis.

All of the Sweet 16 forecast/valuation models were updated over the last two weeks. I take a hard look at each forecast before writing my monthly newsletter.