Sweet 16 Profiles
Posted: Tue Mar 06, 2018 9:55 am
Sweet 16 profiles are updated each quarter. We sent out fresh profiles on CPE and PDCE this morning.
After Q4 results come out is when I take the hardest look at each company, primarily because their year-end reports have the most details. The annual report (10-K) has an update on proven reserves from a 3rd party engineering firm. All of the Sweet 16 are large enough to have Top Shelf engineering firms prepare their annual reserve report.
This week we will be sending out a lot of updated profiles. You should read them carefully, but at a minimum take a hard look at the RED BOX on the last page. The RED BOX will tell you what I like most about this group >>>> They are all going to generate a lot of cash flow from operations this year and in the future.
GAAP/SEC accounting rules for upstream oil & gas companies are complicated and most investor don't have a clue as to what the difference between "Full Cost" and "Successful Efforts" methods of account are. The rules for "Mark to Market Adjustments" on hedges and "Impairment" are confusing for accountants. "Book Value" of assets is almost meaningless in this business.
Just remember this: CASH PAYS THE BILLS, NOT EARNINGS.
The Sweet 16 pass the most important test: This is an extremely capital intensive business. Upstream companies must generate lots of cash flow from operations and have access to the capital markets to grow. This is why I stress focusing on cash flow from operations. Plus, to get into the Sweet 16, a company must have lots of "running room".
After Q4 results come out is when I take the hardest look at each company, primarily because their year-end reports have the most details. The annual report (10-K) has an update on proven reserves from a 3rd party engineering firm. All of the Sweet 16 are large enough to have Top Shelf engineering firms prepare their annual reserve report.
This week we will be sending out a lot of updated profiles. You should read them carefully, but at a minimum take a hard look at the RED BOX on the last page. The RED BOX will tell you what I like most about this group >>>> They are all going to generate a lot of cash flow from operations this year and in the future.
GAAP/SEC accounting rules for upstream oil & gas companies are complicated and most investor don't have a clue as to what the difference between "Full Cost" and "Successful Efforts" methods of account are. The rules for "Mark to Market Adjustments" on hedges and "Impairment" are confusing for accountants. "Book Value" of assets is almost meaningless in this business.
Just remember this: CASH PAYS THE BILLS, NOT EARNINGS.
The Sweet 16 pass the most important test: This is an extremely capital intensive business. Upstream companies must generate lots of cash flow from operations and have access to the capital markets to grow. This is why I stress focusing on cash flow from operations. Plus, to get into the Sweet 16, a company must have lots of "running room".