Energy Prospectus

The main Sweet 16 spreadsheet will be updated on the EPG website this afternoon. It shows my current valuation for each companies' common stock compared to First Call's current price target for each company. Just remember that it takes several weeks after a company releases quarterly results before the First Call numbers are updated. First Call estimates (Revenue, EPS, operating cash flow per share and price targets) are based on the average of all analysts' reports submitted to Reuters. First Call is a service provided by Reuters.

The Sweet 16 moved lower by 1.17% during the week ending August 3rd, despite 5 of the 6 companies reporting Q2 results last week that beat estimates.

Companies that reported Q2 results last week:
Antero Resources (AR) < The only one that came in slightly below my forecast.
Concho Resources (CXO) < A company "in transition" as they recently closed on their merger with RSPP.
EOG Resources (EOG) < The largest company in the Sweet 16
Gulfport Energy (GPOR) < Reported another outstanding quarter. GPOR is the only Sweet 16 company that is trading at a single digit PE ratio.
Newfield Exploration (NFX) < Solid Q2 results and lots of running room in STACK where they continue to get outstanding well results
Range Resources (RRC) < On track to another year of double digit production and proven reserve growth, all funded by operating cash flow

Antero and Range both reported losses based on GAAP accounting. Just remember that "Adjusted Earnings" are what should be compared to my forecasts and First Call's forecasts. Both companies reported positive Adjusted Earnings. GAAP or "Reported Earnings" include lots of non-cash income and expense items, the most confusing of which is the "mark-to-market adjustment" of hedges (derivatives). During periods of significant increases or decreases in commodity prices, Reported Earnings are worthless. This is why for upstream companies you need to focus on Cash Flow From Operations and not earnings. "Cash pays the bills, not earnings".

All three of our "gassers" (AR, RRC and GPOR) get most of their production and revenues from natural gas and NGLs produced in the Marcellus/Utica play. Thanks to increased takeaway capacity, the differentials at the wellheads have declined quite a bit resulting in increased netback prices. All three companies produce a lot of liquids and NGL prices have firmed up. We published an updated profile on RRC last week and we will send out an updated profile on AR on Monday. Gulfport also has significant operations in the Oklahoma SCOOP play where the wells produce a lot of liquids.

Shortly after Q2 results come out, I am updating my forecast/valuation models for each company and posting them to the EPG website. I am also posting my initial comments about the quarter here on our Forum. Our five MBAs (they have all graduated now) are working hard to update the profiles assigned to them and we should be sending out a steady stream of updated profiles next week. I review each profile carefully and I may "tweak" my forecast/valuation model as a result.

All of my forecasts/valuations assume $65/bbl WTI oil price for all future periods.

In this article that I wrote for OilPrice.com last week, I try to explain why investors are still fearful of and avoiding the upstream companies:
https://oilprice.com/Energy/Crude-Oil/W ... tocks.html

If Trump is aggressive with Iran - and I think he will be - I believe we will see WTI spike to $100/bbl early in 2019.

Related article: https://oilprice.com/Energy/Crude-Oil/T ... -Risk.html


Just remember that "The Wall Street Herd" can change directions very quickly. The Sweet 16 companies are all profitable at current oil and gas prices and they are all on-track for double digit production and proven reserve growth this year.

From Keith Kohl who writes the Energy Investor newsletter:

Will Oil Ever Top $100 Again? Think Bigger
Let me be blunt…
We’re going to see $100 oil again, and it might come sooner than you think.
Now, don’t get me wrong, dear reader; I’m not trying to suggest this is going to happen
today, tomorrow, or even this month.
What I AM telling you, however, is that there are a host of catalysts lining up right
now that could easily push crude oil above $80 per barrel, even making a run at $90 per
barrel.
I have a feeling many of my veteran readers can immediately rattle a few of them off the
top of their heads.
Despite all of these events, the foundation for $100/bbl oil will come from the good
old fundamentals. You’d be shocked at how many investors (many of them analysts
themselves!) ignore the supply/demand dynamics that have helped oil go on a monster
130% run since February 2016.
Back in your February 2016 issue, I told you how much more bullish I became the moment
I saw WTI crude trade for $27.56 per barrel.
At the time, the world was consuming an eye-popping 93 million barrels of crude every
single day.
Today, that amount has swelled to over 99 million barrels per day.

Matador Resources (MTDR) is Keith's #1 pick. He rates it a BUY with a price target of $45.

Do you mind listing the stocks from the Sweet 16 that operate primarily in the Permian? Thanks.

Permian Basin "pure plays": CPE, CDEV, CXO, ESTE, FANG, PE, PXD

Others with significant production in the Permian Basin: XEC, EOG, MTDR, PDCE

Thank you. I was trying to figure out if CXO's problems are specific or due to the problems in the Permian.

CXO is doing very well. The stock price is lagging a bit because it is a company "in transition", as they absorb RSPP (acquired for $9.5 Billion). Mergers of this size make it difficult for the Wall Street Gang to forecast, so they avoid them or put them on HOLD until the smoke clears. Q4 2018 will be the first full quarter of "post-merger" results.

Spend 15 minutes going over my forecast model for CXO, which you can view on the EPG website. You will see that they are going to end 2018 strong and start 2019 on a roll. From revenues of $2.7 Billion in 2017 they are on-track for revenues of $4.0 Billion in 2018 and $5.5 Billion in 2019. My forecast of 26% production growth in 2019 is probably too low.