Sweet 16 Update - October 12

[dan_s]

This morning I checked all of my Sweet 16 forecast models and I compared them to what First Call is expecting for the 3rd quarter. All sixteen should report Q3 results that are in-line or above what First Call is now expecting. I think our Bakken companies have the best chance at reporting higher "Adjusted Earnings".

One thing to keep in mind when Q3 results come out is that "Reported Earnings" will include large Mark-to-Market non-cash adjustments on their hedge positions. As I have posted here many times these adjustments (required by GAAP accounting rules) are very confusing to the investing public. Since oil prices were higher at the end of the September than they were at the end of June, these non-cash adjustments on crude oil hedges will cause some companies to report losses for the quarter.

All analysts ignore "reported" earning and so should we. In fact, for E&P companies, it is best just to ignore earnings and focus on cash flow per share. Cash flow pays the bills, not earnings.

I will update my forecast models and my Fair Value Estimates as soon as I can after the companies report Q3 results. We will update all of our Sweet 16 profiles early in November.

The Sweet 16 is now up 42% YTD. [Remembers, when I said months ago that this year was looking just like 2010? In 2010 the Sweet 16 finished the year up 54%. I now think we have a chance to top that.]

> GPOR is now above my Fair Value Estimate. Their adjusted earnings will be down from Q2 and they may report some delays in getting Utica Shale wells completed to sales. GPOR is up almost 500% since being added to the Sweet 16 on 1-1-2010. It may be "Harvest Time" for this one.
> Others getting very close to my Fair Value Estimate ("FVE") are: CXO, XEC and KOG. I think my FVE for all three will move higher after Q3 results come out.
> IMO those with the most upside for us from here are: DNR, EXXI, GTE, UNT, WLL and SM. As posted earlier, Neal Dingman at SunTrust has raised his price target for WLL to $92 and made it his Top Pick. Neal is very good and I am sure he did a lot of hard work on his forecast before making it Whiting his Top Pick.
> Oasis Petroleum (OAS) may draw a lot of attention. I think their progress in the Bakken will impress the market.

[dan_s]

I urge all of you to read our profile on Triangle Petroleum (TPLM). It is a smaller Bakken company that should have a very impressive second half this year. My FVE is $12/share, but that should go up a lot if they report the 2nd half results I am expecting.

CRZO is also "knocking at the door" to move up to the Sweet 16.

3rd quarter results should help a lot of our Small-Cap Growth Portfolio companies.

[dan_s]

I updated the forecast model for EOG. It can be found under the Sweet 16 Tab. Just click on the EOG logo.