Sweet 16 Update - Sept. 21

[dan_s]

I have checked all of my forecast models and updated the Sweet 16 Spreadsheet, which you can find under the Sweet 16 Tab on our website. If you click on Tab 2 of the spreadsheet you will see my current Fair Value Estimate and First Call's Price Target for each company.

As a group, the Sweet 16 is up 32.5% year-to-date, but still trades at a 33.3% discount to my Fair Value Estimates.

Gran Tierra Energy (GTE) has been promoted to the Sweet 16, replacing Helmerich & Payne (HP). I still think HP is a rock solid company with upside, but it is approaching my Fair Value Estimate. The real upside for HP and all of the onshore drillers will be increasing natural gas prices. We will be publishing profiles on two of my favorite onshore drillers in the next few weeks, PDS and PTEN.

I urge you all to read our profile on GTE. It has strong cash flow, a rock solid balance sheet and incredible exploration upside. It is a pure play on South American oil, which may turn some of you off. They've been doing business in South America for years and they have a solid track record of growth. The main reason I added GTE to the Sweet 16 is because they will soon be reporting a significant increase in proven reserves. Read the profile for more.

Energy XXI (EXXI) made a nice move this past week. Listen to their presentation earlier this month in NY at the Barclay's Energy Conference and you will see why I remain very bullish on EXXI. My updated forecast model is available under the Sweet 16 Tab. I have increased my Fair Value Estimate to $51.25/share.

The Sweet 16 remains heavily weighted to oil, but I think there is reason to add more exposure to natural gas. I now think Ngas prices will move over $4.00/mcf this winter and they could spike to $5.00/mcf if we get a cold December. Here are the Sweet 16 companies that give you some exposure to gas:
> Range Resources (RRC): The #1 company in the Marcellus Shale selling their production at over $7.50/mcfe
> Unit Corp. (UNT): Rock solid company and I am expecting them to book a large increase in proven reserves at year-end.
> Cimarex Energy (XEC)
> EOG Resources (EOG)
> SM Energy (SM): They had the most impressive 2nd quarter results. Lots of upside in the Eagle Ford and Bakken.

Denbury Resources (DNR) is trading at the largest discount to my Fair Value Estimate. Wall Street is in love with the shale plays and DNR has no interest in shale. DNR is just a money making machine with high quality long-lived domestic oil reserves.

CXO and GPOR are approaching my Fair Value Estimates, but I will probably increase my target prices after Q3 results come out.

All of the Sweet 16 are on track to report very strong Q3 results.