Sweet 16 Update - Feb 15

[dan_s]

It was a good week for most of the Sweet 16 stocks, but FEAR of Tariff Wars is keeping a lot of money on the sidelines. The WTI oil price is staying a bit lower than what I am using in my Q1 forecasts ($75/bbl), but natural gas prices in Q1 and Q2 have moved much higher than what I am using in the forecasts ($3.50 for Q1 and $3.25 for Q2). All of the Sweet 16 produce a lot of natural gas and NGLs.

The Sweet 16 gained 2.47% during the week ending February 14, and it is now up 4.45% YTD. < Not including dividends.
The S&P 500 Index gained 1.64% during the week and it is now up 4.06%.

Leading the pack are:
> EQT Corp. (EQT) up 16.10% YTD. EQT is the largest gasser in the Sweet 16 with current production of 6.3 Bcfepd (94.2% Ngas).
> Antero Resources (AR) up 13.67% YTD. It reported solid Q4 results on Feb. 12th. AR is the only company in the S-16 that does not pay dividends.
> Civitas Resources (CIVI) up 12.60% YTD. I moved CIVI into the Sweet 16 because it was grossly over-sold in Q4. My current valuation is $84.

Diamondback Energy (FANG) is down 4.25% YTD. On Friday the Wall Street Journal reported that "Diamondback Energy is in talks to buy Double Eagle, a big West Texas crude producer, a sign consolidation in the country’s biggest oil patch isn’t slowing down. Double Eagle, backed by private-equity firm EnCap Investments, could be valued at more than $5 billion in the transaction, the people said. Fort Worth-based Double Eagle owns more than 95,000 net acres in the Midland portion of the Permian Basin and is one of the last big assets left in the region, the largest U.S. oil field."

On January 30th Diamondback announced the $4.5 billion "Dropdown Transaction" of minerals and royalties into Viper Energy (VNOM). < This transaction was expected, so it should not have a negative impact on FANG.

Diamondback is expected to announce Q4 financial results on February 24th. A high percentage of the Wall Street Gang will be on their February 25th conference call. Diamondback is a "Great American Success Story" and one of the Top Dogs in the Permian Basin.

Northern Oil & Gas (NOG) is down 5.47% YTD. On February 12th they put out an operations update, which raised my valuation to $57.00. NOG is a very profitable company ($5.53 EPS in 2024 based on my forecast) and they generate a lot for free cash flow from operations (over $450 million in 2024 per my forecast). It also pays a decent dividend with ~5.1% annual yield.

SM Energy (SM) and Veren (VRN) are both trading at less than 50% of my current valuations of $81.00 and $10.50.

Q4 results this coming week are expected after the markets close from:
> Devon Energy (DVN) on Feb. 18
> EQT Corp. (EQT) of Feb. 18
> Magnolia Oil & Gas (MGY) on Feb. 19
> Matador Resources (MTDR) on Feb. 18
> Northern Oil & Gas (NOG) on Feb. 19
> SM Energy (SM) on Feb. 19

I will be updating my forecast/valuation models as quickly as can.

[dan_s]

Civitas Resources (CIVI) and Veren (VRN) are still trading below book value. Nothing that I can see justifies the low share prices.

Both companies are going to report strong 2024 results. They both generate a lot of free cash flow from operations.

Civitas 2024 preview:
> Estimated Q4 2024 production of 350,000 Boepd with a mix of approximately 47% oil, 28% natural gas, 25% NGLs
> Year-over-year production growth of ~62.5%
> Revenues of approximately $5.2US billion
> Operating cash flow of approximately $3.1 billion ($32.00 per share) with free cash flow from operations of approximately $1.2 billion.
> Net Income of approximately $824 million ($8.49 per share)

Civitas operates wells across the Denver-Julesburg (DJ) and Permian basins. 51% in the DJ Basin and 49% in the Permian Basin

Veren 2024 preview:
> Estimated Q4 production of 188,700 Boepd with a mix of 40% oil, 35.5% natural gas and 24.5% NGLs
> Revenues of approximately $4.3Cdn billion
> Operating cash flow of approximately $2.2Cdn billion ($3.60 per share) with free cash flow from operations of approximately $750Cdn million.
> Net Income of approximately $254 million ($0.41Cdn per share)

Veren Inc. is a Canadian oil and gas company that explores, develops, and produces oil and gas properties in Canada. The company focuses on the production of crude oil, natural gas and natural gas liquids. Its properties are located in the provinces of Saskatchewan and Alberta. The company was formerly known as Crescent Point Energy Corp. and changed its name to Veren Inc. in May 2024. Veren Inc. was incorporated in 1994 and is headquartered in Calgary, Canada.