Sweet 16 Update - October 26

[dan_s]

Since last week’s Sweet 16 Update, First Call price targets have gone up sharply for all but Unit Corp. (UNT), which stayed the same. This is a very good sign for the group. The analysts that provide price targets to First Call check their forecast models carefully right before quarterly earnings come out. They don’t want to look stupid when the companies report earnings.

I checked all of my forecast models this morning. You can find a spreadsheet with a summary of my forecast models and my Fair Value Estimates for each company under the Sweet 16 Tab. Individual company profiles and forecast models can be found by clicking on the company logos. Remember, you must log on to get today’s version.

Send an e-mail to Sabrina (EPG Member Services) at energyprospectus@gmail.com if you have forgotten your username or password.

The Sweet 16 did pull back a bit this past week. DNR and WLL were the only two up for the week.
> The Sweet 16 is now up 47.1% YTD, compared to the S&P 500 which is up 23.4% YTD.
> The Sweet 16 is still trading at a 24.4% discount to my Fair Value Estimates, so we have plenty of upside. Hang tough!

Whiting Petroleum (WLL) reported outstanding 3rd quarter results this week. If this is an indication of what the rest of the pack will do, we are in for a great quarter. I have updated my forecast for WLL and increased my Fair Value Estimate to $98.65/share.

Kodiak Oil & Gas (KOG): I have increased my valuation to $16.00/share.
> The company reported average daily sales volumes of 35,400 barrels of oil equivalent per day (BOE/d) for the third quarter 2013. Q3 production topped my forecast by a wide margin.
> This represents a 54% increase over second quarter 2013 sales volumes of 23,200 BOE/d, and a 123% increase over sales volumes of 15,900 BOE/d for the third quarter 2012.
> Crude oil accounted for 90% of third quarter 2013 sales volumes.
> The Company estimates its average daily production for the full-year 2013 will be approximately 30,000 BOE/d. This compares to 2012 full year production of 14,400 BOE/d.
> The Company projects an exit rate for 2013 sales volumes of approximately 42,000 BOE/d.
> I am forecasting average daily production of 39,500 boepd for the 4th quarter (88.6% crude oil).

I believe all of our Bakken companies are going to report outstanding 3rd quarter results. I am now expecting my valuations for CLR, EOG, OAS and SM will also be going up after their Q3 reports.

I have updated my forecast models for Concho Resources (CXO) and Cimarex Energy (XEC). My valuations are now $121.00/share for CXO and $125.00/share for XEC. These are both top shelf picks in the Permian Basin.

My only concern today is Gulfport Energy (GPOR). Their Utica Shale production will be up, but it may not meet the expectations of some analysts. First Call’s price target has increased to $77.80/share, which seems a bit too high to me. Let’s hope I am being overly cautious. If their production is less than anticipated due midstream issue (my expectation), and the share prices pulls back, I will view that as a great buying opportunity. GPOR has outstanding long-term potential for us.

I did see a report this week that North Dakota oil price differentials have widened again due to increasing production and lack of takeaway capacity. Our Bakken companies have good marketing groups, so they are able to sell all of their production. This is not a big deal, but it could dampen the near-term outlook for the Williston Basin a bit.

I told all of our interns yesterday that updating the Sweet 16 company profiles is their top priority. We will be sending out updates via Flash Alerts, so keep an eye on your e-mail inbox.

[letitfly]

Dan

Recently you had indicated that Cimarex was a bit over-priced and to think about taking profits. What has changed your mind to increase the share price going forward?

Thanks

[letitfly]

Sorry, no need to answer as I just saw the XEC post from Friday. Thanks

[dan_s]

I get a lot of analysts reports. One that I have a lot of respect for raised his target prices for CLR, CXO and XEC, so I decided to take a hard look at my forecast models and valuations for all three.

XEC has a very strong balance sheet and lots of running room. I was valuing it at just 6X CFPS. I decided to raise my valuation to 8X CFPS. You can find the actual formula at the bottom of my XEC forecast, which you can find under the Sweet 16 Tab. You can download it to Excel and play with the production forecast.

8X CFPS is still a low multiple for a company with this much running room. I now believe that XEC has over a decade of low-risk drilling inventory.

I also raised my valuation for CXO and I will probably raise my target for CLR after I see their Q3 results.

FYI: Our top intern at SMU just sent me the updated profile on WLL. IMO that company is grossly undervalued by the market. WLL is trading at less than 5X CFPS, a ridiculous multiple for a company that is the second largest leaseholder in the heart of the Bakken. For comparison, CLR trades at over 8X CFPS and OAS at 7X CFPS. I will send out a special Flash Alert on WLL on Monday.