Energy Prospectus

Friday, March 9, 2018

Oil posted some steep losses mid-week after the EIA reported another crude oil inventory increase. Some fears about U.S. steel tariffs, and follow up tit-for-tat protectionist measures, also weighed on crude sentiment. But news that Trump would allow some exceptions to the tariffs, as well as a strong jobs report and a falling U.S. oil rig count sent oil prices bouncing back up on Friday.

Saudi Aramco CEO: Oil industry needs $20 trillion in investment.
ver the next 25 years, the oil industry will need another $25 trillion in investment just to meet expected demand, while also accounting for natural depletion at existing fields, Aramco’s CEO Amin Nasser said at the CERAWeek Conference on Tuesday. The sentiment came after the IEA warned that the oil market will be short on supply in the 2020s without an increase in upstream spending. In fact, there is a growing chorus of analysts who agree with the basic premise that the oil market could be well-supplied in the near-term because of U.S. shale, but faces supply risks in the early- to mid-2020s because of low upstream investment. "I am not losing any sleep over peak oil demand or stranded resources," Nasser added.

OPEC production dips to 9-month low. Total OPEC production dropped to 32.14 million barrels per day in January, according to Argus Media, a 9-month low. That was largely the result of a sharp decline in output from Nigeria and Venezuela, and OPEC officials waived away concerns about the drop. "There is no plan to do anything (about Venezuela's output) at this point," Saudi oil ministry adviser Ibrahim Al-Muhanna said at the CERAWeek Conference. "The market has not reached the point of balance … there is no need to address it this year."

AR and GPOR are gassers with great rock and solid fundamentals. They can’t stay in the dog house forever. Eventually their abundant cash flows will get noticed and rewarded.

I agree that the gassers have been in the Wall Street "penalty box" way too long. AR is up 9.5% YTD as Wall Street finally seems to notice that Antero has 100% of its gas for 2018 and 2019 hedged at $3.50/MMBtu and it is growing production at 20% YOY.

GPOR's reported earnings per share were $2.38 in 2017. It has the lowest PE ratio (4.5) in the Sweet 16 AND it has solid earnings and cash flow locked in for 2018. 80% of GPOR's 2018 gas is hedged at over $3.00. Hedge tables can be found at the bottom of each forecast model. Continued strong well results in SCOOP should eventually draw some Wall Street attention. Their IR department also needs to do a much better job of telling their story.

The main Sweet 16 spreadsheet is now up-to-date and can be downloaded to Excel from our website. Under Tab 1 you can find my EPS and CFPS forecast for each company.