During the week that ended July 11 the Sweet 16 gained 1.36% but it is still down 5.20% YTD. < Not including dividends and the large gain we harvested on Veren (VRN). Veren merged into Whitecap Resources (WCP.TO) mid-May. I will be adding Whitecap to our High Yield Income Portfolio to replace Sitio Royalties (STR), which is being acquired by Viper Energy (VNOM). Whitecap's dividend yield is ~8% based on Friday's closing price.
During the week that ended July 11 the S&P 500 Index lost 0.16%, but it is still up 6.51%.
My valuations and First Call's price targets for the Sweet 16 did not change during the week.
Antero Resources (AR), one of the four Gassers in the Sweet 16, declined by 3.52% during the week. No specific reason for the decline. Just weakness in the front end of the NYMEX strip for HH natural gas futures. The other three Gassers (CTRA, EQT, RRC) only had slight changes.
Civitas Resources (CIVI) up 8.8% and SM Energy (SM) up 10.0% were the big gainers for the week, but they continue to trade at less than 50% of my current valuations. First Call's price targets of $43.79 for CIVI and $39.69 for SM were unchanged. SM Energy ranks 4 out of 84 in Harry's ranking based on Net Present Value per share. Neither one of us can find any reason for SM's deep discount to our valuations.
CIVI, SM and Crescent Energy (CRGY) are still trading below book value. Diamondback Energy (FANG) has moved slightly over book value. These are all profitable companies that are free cash flow positive, and they all have lots of high-quality "Running Room". They all generate more than enough to maintain their dividends.
Natural gas futures for Q3 and Q4 are trading much lower than the Ngas prices used in my forecasts, but I remain bullish on the outlook for North America natural gas prices, which was discussed on Friday's webinar. Mild weather in June and first half of July is the reason for the dip in the front of the NYMEX curve for HH Ngas. Summer is far from over and LNG exports are increasing.
Crescent Energy (CRGY) with a production mix of 42% natural gas, 18% NGLs and 40% crude oil looks like the best buy. It is free cash flow positive, has current production of approximately 253,000 Boepd, lots of "Running Room" in South Texas where they have plenty of pipeline access to the Gulf Coast LNG exporters and it is on pace for ~28% YOY production grow this year. My valuation of $19.50 is just 3X annualized operating CFPS looks conservative. Commodity price risk is reduced by the Company's hedging program. First Call's price target is $14.15.
My forecast/valuation models and our profiles for each company have been updated. You can download them from the EPG website. Just log on and click on the Sweet 16 tab.
Sweet 16 Update - July 12
Sweet 16 Update - July 12
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group