The Sweet 16 gained 1.97% for the week ending June 30. However, the portfolio is still down 26.06% YTD. I've never seen Wall Street this negative on the energy sector for this long.
The S&P 500 Index lost 0.66% for the week, but it is up 8.25% YTD. Even a slight reduction in the gloom & doom hanging over the energy sector should cause fund managers to rotate money into this grossly oversold sector.
I am going to review all of the Sweet 16 individual forecast models this weekend and make some adjustments to my valuations. Only slight changes to my valuations so far, except for CRZO which I have reduced to $42.00/share. First Call's price target is $36.00.
As I mentioned at the luncheon on Friday, AR, GPOR and RRC look very attractive to me. If you that believe I may be right about the U.S. natural gas market, check out these high quality "gassers". Add EQT to the list.
I will have more comments on Saturday.
Sweet 16 Update - July 1
Sweet 16 Update - July 1
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Sweet 16 Update - July 1
On Saturday, July 1 - I am going over each Sweet 16 company forecast model line-by-line. Updated forecast models will be posted to the EPG website under the Sweet 16 tab.
After I update the forecasts, I compare them to First Call's forecasts for revenues, earnings-per-share, and operating cash flow per share.
After I update the forecasts, I compare them to First Call's forecasts for revenues, earnings-per-share, and operating cash flow per share.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Sweet 16 Update - July 1
I have reviewed and updated all 16 company forecast/valuations models. My valuations are all based on what I believe are reasonable multiples of operating cash flow per share. My method for valuation of a company is the same method that my team at Hess used in 2000-2001 to evaluate potential takeover targets.
The updated forecast models will be available for viewing and downloading to Excel from the EPG website this evening.
The valuation of any upstream oil & gas company is somewhat based on the eye of the beholder. However, strong cash flow and lots of proven reserves do have present value. For example, a company with strong cash flow from operations + lots of running room for low-risk development drilling + large blocks of contiguous leasehold in the best oil & gas basins are more valuable and more likely to be takeover targets. An example of what I'm talking about is the recent takeover of Rice Energy (RICE) by EQT Corp. EQT is willing to pay a 30% premium to the share price because Rice has nice big blocks of leasehold that fit well with EQT's existing acreage and their growth plan. Making Rice's acreage even more valuable is the fact that a lot of it is held by production. In my opinion, all of the Sweet 16 are prime takeover targets that are trading at big discounts to their takeover or break-up value.
The Sweet 16 are also trading as if oil, gas and NGL prices are going to trade at depressed prices forever. I believe the commodity prices used in all forecast periods are reasonable and take into consideration each company's hedges and regional price differentials. However, if you want to see how changing the oil, ngas and NGL prices in future periods impact share price valuations, just download the spreadsheets to Excel and change the commodity prices. The forecast models are "macro driven", so they update everything automatically.
"Pure Plays" on the hot basins, like the Permian Basin, are extremely attractive and deserve to trade at high multiples. Pure Play Permian companies are: CPE, FANG, PE, RSPP and PXD. PXD deserves a slightly lower multiple because it is so large that it not a likely takeover target. PXD is more likely to be a buyer.
Based on my forecast models, which are very close to what First Call is currently forecasting, the Sweet 16 should all report positive earnings for the 2nd quarter. Most of them will have "Reported Earnings" that exceed my forecast because of big non-cash mark-to-market gains on their hedges. Analysts, including me, to not include the mark-to-market adjustments in forecasts. We also don't include stuff like impairment charges and gains or losses on asset sales.
The only two companies that might not have positive "Adjusted Earnings" are Continental Resources (CLR) and PDC Energy (PDCE). Both of these companies have extremely valuable assets in key basins.
CLR and EOG Resources (EOG) are the only two companies that don't have oil hedged for 2017, so if oil stays under $50/bbl they have more risk of missing my forecasts for Q3 and Q4.
All three "gassers" (AR, GPOR and RRC) look like "Screaming Buys" to me. They are all trading at less than half of my current valuation. AR and RRC are pure plays on the Marcellus/Utica.
GPOR recently acquired a second core area in the Oklahoma SCOOP play. I like it a lot, but Wall Street is not sold yet and Wall Street has yet to focus on the tightness of the U.S. natural gas market. Credit Suisse published a detailed report on SCOOP on 3-31-2017. In the report, CS specifically looked at Gulfport's SCOOP acquisition. Credit Suisse's estimate of ultimate recoveries across Gulfport's leasehold are based on horizontal wells with 7,500 ft. laterals:
> 2,315,000 BOE per well in the Woodford Condensate zone (19% oil, 36% NGLs and 44% natural gas). The type curves are based on 30 Day IP rates of 1,100 Boepd
> 2,717.000 BOE per well in the Woodford Wet Gas zone (11% oil, 40% NGLs and 49% natural gas). The type curves are based on 30 Day IP rates of 16.3 Bcfpd
> 1,045,000 BOE per well in the Springer zone (73% oil, 12% NGLs and 15% natural gas). The type curves are based on 30 Day IP rates of 900 Boepd.
On March 31, 2017 Credit Suisse said GPOR's net asset value was $33/share. Keep in mind that on 3/31 the outlook for the U.S. natural gas market was much lower than it is today.
Check the next post to see what Gulfport recently announced in SCOOP and compare the two new wells to the type curve rates above.
The updated forecast models will be available for viewing and downloading to Excel from the EPG website this evening.
The valuation of any upstream oil & gas company is somewhat based on the eye of the beholder. However, strong cash flow and lots of proven reserves do have present value. For example, a company with strong cash flow from operations + lots of running room for low-risk development drilling + large blocks of contiguous leasehold in the best oil & gas basins are more valuable and more likely to be takeover targets. An example of what I'm talking about is the recent takeover of Rice Energy (RICE) by EQT Corp. EQT is willing to pay a 30% premium to the share price because Rice has nice big blocks of leasehold that fit well with EQT's existing acreage and their growth plan. Making Rice's acreage even more valuable is the fact that a lot of it is held by production. In my opinion, all of the Sweet 16 are prime takeover targets that are trading at big discounts to their takeover or break-up value.
The Sweet 16 are also trading as if oil, gas and NGL prices are going to trade at depressed prices forever. I believe the commodity prices used in all forecast periods are reasonable and take into consideration each company's hedges and regional price differentials. However, if you want to see how changing the oil, ngas and NGL prices in future periods impact share price valuations, just download the spreadsheets to Excel and change the commodity prices. The forecast models are "macro driven", so they update everything automatically.
"Pure Plays" on the hot basins, like the Permian Basin, are extremely attractive and deserve to trade at high multiples. Pure Play Permian companies are: CPE, FANG, PE, RSPP and PXD. PXD deserves a slightly lower multiple because it is so large that it not a likely takeover target. PXD is more likely to be a buyer.
Based on my forecast models, which are very close to what First Call is currently forecasting, the Sweet 16 should all report positive earnings for the 2nd quarter. Most of them will have "Reported Earnings" that exceed my forecast because of big non-cash mark-to-market gains on their hedges. Analysts, including me, to not include the mark-to-market adjustments in forecasts. We also don't include stuff like impairment charges and gains or losses on asset sales.
The only two companies that might not have positive "Adjusted Earnings" are Continental Resources (CLR) and PDC Energy (PDCE). Both of these companies have extremely valuable assets in key basins.
CLR and EOG Resources (EOG) are the only two companies that don't have oil hedged for 2017, so if oil stays under $50/bbl they have more risk of missing my forecasts for Q3 and Q4.
All three "gassers" (AR, GPOR and RRC) look like "Screaming Buys" to me. They are all trading at less than half of my current valuation. AR and RRC are pure plays on the Marcellus/Utica.
GPOR recently acquired a second core area in the Oklahoma SCOOP play. I like it a lot, but Wall Street is not sold yet and Wall Street has yet to focus on the tightness of the U.S. natural gas market. Credit Suisse published a detailed report on SCOOP on 3-31-2017. In the report, CS specifically looked at Gulfport's SCOOP acquisition. Credit Suisse's estimate of ultimate recoveries across Gulfport's leasehold are based on horizontal wells with 7,500 ft. laterals:
> 2,315,000 BOE per well in the Woodford Condensate zone (19% oil, 36% NGLs and 44% natural gas). The type curves are based on 30 Day IP rates of 1,100 Boepd
> 2,717.000 BOE per well in the Woodford Wet Gas zone (11% oil, 40% NGLs and 49% natural gas). The type curves are based on 30 Day IP rates of 16.3 Bcfpd
> 1,045,000 BOE per well in the Springer zone (73% oil, 12% NGLs and 15% natural gas). The type curves are based on 30 Day IP rates of 900 Boepd.
On March 31, 2017 Credit Suisse said GPOR's net asset value was $33/share. Keep in mind that on 3/31 the outlook for the U.S. natural gas market was much lower than it is today.
Check the next post to see what Gulfport recently announced in SCOOP and compare the two new wells to the type curve rates above.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Sweet 16 Update - July 1
OKLAHOMA CITY, June 21, 2017 (GLOBE NEWSWIRE) -- Gulfport Energy Corporation (NASDAQ: GPOR) (“Gulfport” or the “Company”) today provided an update on its recent SCOOP well results. Key highlights include:
•The Vinson 2-22X27H produced at an average 30-day peak production rate of 15.7 MMcfe per day.
•The Vinson 3R-22X27H produced at an average 30-day peak production rate of 18.7 MMcfe per day.
NOTE: These wells compare to the Credit Suisse pre-drill type curves of 16.3 MMcfe per day for the first 30 days.
As previously announced, during the second quarter of 2017 Gulfport turned-to-sales two gross (1.2 net) wells, the Vinson 2-22X27H and Vinson 3R-22X27H, located in the wet gas window in southern Grady County.
Following 30 days of production, the Vinson 2-22X27H has cumulatively produced 418.4 MMcf of natural gas and 1,382 barrels of oil and the Vinson 3R-22X27H has cumulatively produced 498.8 MMcf of natural gas and 1,552 barrels of oil. Based upon the composition analysis, the gas being produced from the Vinson pad is 1,118 BTU gas and yielding 35.7 barrels of NGLs per MMcf of natural gas and results in a natural gas shrink of 11%. On a three-stream basis, the Vinson 2-22X27H produced at an average 30-day peak rate of 15.7 MMcfe per day, which is comprised of approximately 79% natural gas, 19% natural gas liquids and 2% oil. The Vinson 3R-22X27H produced at an average 30-day peak rate of 18.7 MMcfe per day, which is comprised of approximately 79% natural gas, 19% natural gas liquids and 2% oil.
Gulfport is now running four operated rigs in SCOOP and they should complete more than 20 gross wells to sales in 2017. They have ~1,750 gross horizontal drilling locations in SCOOP. If Gulfport announces 20 horizontal wells in SCOOP that meet or exceed the Credit Suisse type curves, GPOR should move above the Credit Suisse NAV ($33/share). Keep in mind that Credit Suisse assumed $3.00/mcf natural gas price for all future periods.
•The Vinson 2-22X27H produced at an average 30-day peak production rate of 15.7 MMcfe per day.
•The Vinson 3R-22X27H produced at an average 30-day peak production rate of 18.7 MMcfe per day.
NOTE: These wells compare to the Credit Suisse pre-drill type curves of 16.3 MMcfe per day for the first 30 days.
As previously announced, during the second quarter of 2017 Gulfport turned-to-sales two gross (1.2 net) wells, the Vinson 2-22X27H and Vinson 3R-22X27H, located in the wet gas window in southern Grady County.
Following 30 days of production, the Vinson 2-22X27H has cumulatively produced 418.4 MMcf of natural gas and 1,382 barrels of oil and the Vinson 3R-22X27H has cumulatively produced 498.8 MMcf of natural gas and 1,552 barrels of oil. Based upon the composition analysis, the gas being produced from the Vinson pad is 1,118 BTU gas and yielding 35.7 barrels of NGLs per MMcf of natural gas and results in a natural gas shrink of 11%. On a three-stream basis, the Vinson 2-22X27H produced at an average 30-day peak rate of 15.7 MMcfe per day, which is comprised of approximately 79% natural gas, 19% natural gas liquids and 2% oil. The Vinson 3R-22X27H produced at an average 30-day peak rate of 18.7 MMcfe per day, which is comprised of approximately 79% natural gas, 19% natural gas liquids and 2% oil.
Gulfport is now running four operated rigs in SCOOP and they should complete more than 20 gross wells to sales in 2017. They have ~1,750 gross horizontal drilling locations in SCOOP. If Gulfport announces 20 horizontal wells in SCOOP that meet or exceed the Credit Suisse type curves, GPOR should move above the Credit Suisse NAV ($33/share). Keep in mind that Credit Suisse assumed $3.00/mcf natural gas price for all future periods.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group