Sweet 16 Update - May 18

[dan_s]

It was a good week for the Sweet 16, which is now up 12.8% YTD. The portfolio is still trailing the S&P 500 Index (up 16.9% YTD) but it does appear that more investors are getting comfortable with increasing their exposure to the this sector.

I have updated my forecast models for each company and posted them under the Sweet 16 Tab. I am still using $85/bbl WTI for my 2nd half of the year forecasts and the calculations of my Fair Value Estimates. If WTI stays in the $90-$95 per bbl range, it is going to be a very good year for this group, which is heavily weighted to oil.

This morning we sent out a spreadsheet that has a summary of my Fair Value Estimates compared to First Call's Price Targets. This spreadsheet is updated each weekend and posted under the Sweet 16 Tab.

Natural gas prices are hanging tough in the $4.00/mmbtu range and I expect it to stay in that range for awhile. We are right in the middle of "Shoulder Season", so there will be large increases in U.S. NG storage reported by EIA for the next 4-5 weeks before summer demand picks up. I checked the weather forecast and highs in the 90's are spreading all across the SE quarter of the nation, an area that demands of lot of electricity for air conditioning. NG fired "peaking plants" are already coming on-line and they burn a lot of gas.

We sent out our updated profile on Gulfport Energy (GPOR) this morning. This is shaping up to be a breakout year for GPOR, so read the profile carefully.

Baker Hughes weekly report is showing a slow but sure increase in the North American active rig count. Spring Break-Up is coming to an end, so we will see a sharp increase in the Canadian rig count soon. Helmerich & Payne (HP) and Unit Corp. (UNT) will benefit from this increasing demand for rigs. If I'm right about natural gas prices ramping up to $5.00 by year-end, a lot of attention will be drawn to the drillers. Check out our Drillers Watch List, which you can find under the Watch List Tab. We update it each weekend.

Kodiak Oil & Gas (KOG) is finally showing some life. Management is telling the market that production will be up more than 90% this year. IMO this pure play on the Bakken / Three Forks play is a prime takeover target. If the company is "put in play" at today's oil prices, I think the winning bid would be near $12.50/share. Management has been guilty of over-promising then under-delivering in the past. If they start hitting their own production guidance, the share price should catch up with the pack. [Since I have learned to doubt KOG's guidance, my valuation is based on average daily production 1,000 boepd below the low end of their guidance.]

Since natural gas prices during the 2nd half should be double from a year ago, comparable Q3 and Q4 results for the Sweet 16 with a lot of gas production should be impressive. Those companies are: CRZO, XEC, EOG, EXXI, RRC, SM and UNT. RRC and UNT have the most exposure to improving gas prices.

Now that I'm up-to-date on the Sweet 16, I am turning my attention to our Small-Cap Growth Portfolio.
> Gastar Exploration (GST) looks a heck of a lot better today than it did just a few months ago. The pfd stock (GST-PA) has been in our High Yield Income Portfolio for a year and I am now adding the common to the small-cap portfolio.
> We will be publishing reports on Approach Resources (AREX) and Comstock Resources (CRK) next week.

[geneb]

I'm doing some research on best opportunities in NG for the long term. CRZO is one being viewed. Profile has been referenced to "profile" under Sweet 16 tab but not there. Can this be corrected?
Your last "View" touched on this subject. Perhaps more directed series of comments on NG in your next "View" might be appreciated by all.
Thanks, Gene

[dan_s]

Profiles are for EPG members only. You have to log on, click on the Sweet 16 then click on the company logo.

[dan_s]

One of my Rice interns is still working on the profile for CRZO. I should have it finished next week. My updated forecast model can be found under the Sweet 16 Tab.