Sweet 16 Update - Oct 14

[dan_s]

During the week ending October 13 the Sweet 16 gained 10.47% (best week this year) and it is now up 19.23% YTD.
During the week the S&P 500 Index gained 0.50% and is now up 12.72% YTD. Had the Energy Sector not done so well, the S&P 500 would have declined last week.

Obviously, the war in Israel is adding a lot of geopolitical risk. Team Biden can no longer ignore the fact that Iran is the "Mastermind" behind Hamas and clearly all of those rockets fired into Israel came from Iran. There are no rocket factories in Gaza. Biden will be under increasing pressure to enforce the Trump sanctions against Iran and possibly increase them. If so, the tight global oil market, which is under-supplied today, will become VERY TIGHT.

I will be featuring Vital Energy (VTLE) in today's podcast, which will be posted to the EPG website late this afternoon. Read my previous post. Vital reported Q3 production that exceeded their production guidance and beat my forecast by a wide margin. VTLE closed at $55.47 yesterday, which compares to my current valuation of $141.00 and First Call's price target of $81.63. If they do report Q3 financial results in line with my forecast, the First Call price target should be going a lot higher.

As a group, the Sweet 16 closed on Friday at a 47% discount to my current valuations.
> It trades at just 3.7 X operating cash flow per share. A group of companies that are this profitable, generate a lot of free cash flow and have lots of high-quality "running room" should be trading for at least 5X operating cash flow.
> Four of the Sweet 16 (CPE, CPG, VTLE, and SBOW) are trading at less than 2.5 X operating CFPS.
> "The Big Paradigm Shift" is just in the early phases. Rapidly declining OECD Petroleum Inventories will result in multiple expansion for the upstream oil & gas companies.

My Top Pick among the smaller companies is SilverBow Resources (SBOW):
> Trading at $34.60; just 1.59 X operating CFPS. My current valuation is $78.00.
> It is on-track to report 2023 net income of $10.36 per share based on my forecast. First Call's EPS forecasts are $6.67 for 2024 and $15.86 for 2024.
> They should close a very significant and immediately accretive acquisition ("Chesapeake South Texas") in November that will take the Company's production near 100,000 Boepd.
> SilveBow should report solid oil production growth from Q2 to Q3, thanks to their two rig drilling program in the Eagle Ford / Austin Chalk.
> It holds a lot of P2 natural gas reserves in Webb County, where I expect them to complete two DUC wells in December.

Baytex Energy (BTE) will replace Earthstone Energy (ESTE) after ESTE merges into Permian Resources (PR) at the end of October. In my opinion, PR, Diamondback Energy (FANG) and Matador Resources (MTDR) are the most likely takeover candidates since they are all pure plays on the Permian Basin and they have a lot of high-quality leasehold.

All 16 companies should report Q3 results that match or exceed my forecasts because WTI oil and HH ngas prices exceeded what I used in my forecasts.

[dan_s]

Four of the Sweet 16 have confirmed that they will announce their Q3 financial results in October.
> Oct 24: MTDR and RRC
> Oct 25: EQT
> Oct 30: CRK

[Fraser921]

Its going to be a fun earnings season

I really like MTDR