Sweet 16 Update - July 7

[dan_s]

I just posted an updated spreadsheet that shows a summary of my 2013 forecasts by quarter for all of the Sweet 16. Check it out and you will see the adjusted earnings per share that I am expecting each company to report for the 2nd quarter. Tab 2 shows you how well (or not) each stock has done since I added it to the portfolio. Tab 2 also shows my Fair Value Estimate for each company compared to the current First Call 12-month Target Price.

"Adjusted Earnings" are not GAAP EPS. Adjusted Earnings to not include non-cash mark-to-market adjustments on hedges. Adjusted Earnings compare to what First Call is forecasting.

You must be an EPG member and log on to see the spreadsheet (posted under the Sweet 16 Tab).

Note that my Fair Value Estimates assume $85/bbl WTI and $3.50/mcf for Henry Hub natural gas beyond Q2.

The Sweet 16 is heavily weighted to oil, so not surprising that it had a very good week. I think natural gas will trade in the $3.50 to $4.00 range for the next 4-5 months, but I still think we have a good chance to see much higher gas prices this winter.

Some observations:
> Whiting Petroleum (WLL) showing some life. It is now up 13.3% YTD, but still trading way below my valuation and First Call's target price, which has been inching higher. At $49/share it is still trading at just 3.4 X my CFPS estimate for this year.
> Energy XXI (EXXI) has a strong balance sheet and is expected to report a significant increase in production from Q1 to Q2. It is trading at just 3.2 X my CFPS estimate for this year. EXXI has a June fiscal year-end, so they will also be reporting a revised reserve report.
> SM Energy (SM) and Unit Corp (UNT) look very attractive to me at their current prices. Both are focused on increasing liquids production but they both have a lot of proven gas reserves.

[dan_s]

SAN FRANCISCO, CA--(Marketwired - Jul 8, 2013) - Sam Wahab, an analyst with Cantor Fitzgerald, stated in an interview with The Energy Report, "One company of note that I cover in the Gulf is Energy XXI (NASDAQ: EXXI). It entered the region in 2005 and purchased key assets from Exxon in 2010. The potential of U.S. exports has pushed the company to invest in the Gulf even more this year. The company budgeted a capex program of $750 million ($750M). Approximately 75% of the firm's fiscal 2013 budget targets development drilling, and 25% of the budget targets exploration drilling.

"Energy XXI has a geographically focused portfolio with some of the largest margins in the industry. It is focused on developing acquired properties while ramping up a complementary exploration program designed to provide organic growth. Also, it has more than 120 million barrels oil equivalent (120 MMboe) in proved reserves. It is set to soon produce 50,000 barrels of oil equivalent per day, of which 70% is oil. The signs look good for this company."

[epg$dick]

What is you reaction to the WSJ article today about 9% return on capital at the world's largest oil companies? Eichard

[dan_s]

That is why I don't recommend the majors. The most upside is in the mid-caps and the small-caps that hit it big.