Sweet 16 Update - May 25

[dan_s]

I hope you are all enjoying your holiday weekend. I worked on the yard this morning. I actually like yard work. Getting out from behind the computer screen and getting dirty and sweaty is relaxing for me. Plus, I enjoy an "adult beverage" after the work.

The Sweet 16 is now up 11.3% YTD. Still trailing the S&P 500. Second quarter results are going to be very strong for this group.

BCEI, up 34.1% YTD, leads the pack. Somewhat surprising to me since it is not in one of the Big Three oil plays. BCEI is focused on the Niobrara and expecting 60% production growth this year.

Energy XXI (EXXI) is the only stock down YTD. It is down 20.5% YTD, but I am expecting it to report a strong fiscal 4th quarter and a decent year-end reserve report.

Magnum Hunter Resources (MHR) hosted our luncheon yesterday in Houston. I think they will be fine after they get their accounting issues behind them. They may sell some midstream assets to shore up the balance sheet. There are plenty of MLPs that will bid on their pipeline assets. The lawyers will have to be paid off and PWC's audit manager that screwed this up should be shot. Believe me (I used to work for Arthur Anderson), there are some really bad managers working for Big Four accounting firms. BDO is a good firm and their oil & gas partners are first class. If you hold MHR pfd stock you should get caught up on the dividends by the end of the summer. Hang tough.

Unit Corp. (UNT) and Whiting Petroleum (WLL) look like Screaming Buys to me, but I have been saying that for months. Read our recent profile on UNT. If natural gas keeps drifting higher, UNT is going to beat the First Call EPS estimates for at least the next three quarters. They have beaten the First Call EPS estimates the last five quarters, so they are on a roll. Management needs to get out of Tulsa and promote the stock more.

Mitcham Industries (MIND), a former Sweet 16 company, will report their fiscal Q1 results soon. Keep an eye on that one. It is debt free and demand for seismic remains high all over the globe.

The next newsletter will be sent out on Tuesday with more on the Sweet 16 and the other portfolio stocks.

[bearcatbob]

"The lawyers will have to be paid off and PWC's audit manager that screwed this up should be shot."

If the lawyers are to be paid off - is there recourse to PWC for that cost?

[dan_s]

If I was running MHR, I'd definitely consider it. It appears that PWC did not have an adequate team in there but we may never find out. MHR just needs to get this issue behind them as quickly as possible.

Kip Ferguson implied at our luncheon that MHR will be selling some midstream assets to shore up the balance sheet. That should encourage more buying of the pfd stock.