Sweet 16 Update - Jan 4

[dan_s]

I have double checked all of my forecast models and posted an updated Sweet 16 spreadsheet to the website.

MTDR and SN are being added for 2014. They replace DNR and EXXI. I will continue to follow DNR and EXXI (I own them both) and we will update their forecasts and profiles each quarter. EXXI has been moved into our Small-Cap Growth Portfolio.

Crude oil prices are down a few dollars since the first of the year and the Sweet 16 starts off the year down 3.2%. MTDR is the only one in the green, so far. The February NYMEX contract for WTI closed at $94.34 on Friday, bouncing off support at $94. There are strong support levels at $92, $88, and $84. If $94 holds next week it will be a good sign. However, I do expect WTI to dip into the $80s in the 2nd quarter, then move back to current levels during the second half of this year. As long as the global economy keeps limping along, demand for crude oil will increase.

Recently the IEA raised its 2013 global demand estimate to 91.0 barrels per day, and raised their 2014 estimate to 92.1 million barrels per day. That represents a roughly 1.0 million barrel per day increase in 2013 and a 1.1 million barrel per day increase in 2014. The IEA is forecasting at least a 1.0 million barrel per day increase in demand each year through 2020.

As of Friday's close, the Sweet 16 is trading 50.1% below my Fair Value Estimates. All of my valuations assume $90/bbl WTI and $3.50/mcf for U.S. natural gas. On the 2nd tab of the Sweet 16 spreadsheet (which I update each weekend) you can find my Fair Value Estimate for each company compared to the current First Call Price Target. My "Fair Value Estimate" is what I think each company's break-up value is today. At the bottom of each company's individual forecast model you can see how I calculate the Fair Value.

Under the Sweet 16 Tab you can also find our updated profile for each company. We update them each quarter. These are for EPG members only, so you must log on to see them. Just click on the Sweet 16 Tab, then click on the company's logo.

The Permian Basin companies (CXO, XEC, ROSE and SM) have reported some weather related production issues in Q4, but things are back to normal out there. Overall, Q4 results are going to be strong and year-end reserve reports should be quite impressive.

All of the Sweet 16 have double digit production growth locked in for 2014. GPOR should lead the pack in this area. Based on their guidance, production will be up more than 300% year-over-year.

Natural gas prices have improved and they will give Q1 revenues a nice boost, but the U.S. gas market is still over-supplied. The Sweet 16 remains heavily weighted to oil.

If you have questions about individual companies, post them here and I will answer.

[Laurin_DE]

Dan,
any specific reason for the recent weakness of the Bakken S16 members?
Thanks (and best wishes for a good 2014 to you and your family).

[dan_s]

Check the U.S. weather map to answer your question. It is very rough in North Dakota today, but they are used to dealing with it.

There will be some freeze offs at these sub-zero temps.

Weather is a short-term issue that does not impact the ultimate recoveries, so I view weather related dips as good buying opportunities. The Permian Basin companies had some weather related production issues in December and things are now back to normal out there.

[dan_s]

Bakken companies are also impacted by higher differentials on crude oil prices. Read this.

http://seekingalpha.com/article/1928071 ... urce=yahoo