I have finished updating all 16 individual company forecast/valuation models.
Company Name, Primary Product, Stk Symbol, My Value, 5/10 closing price
ANTERO RESOURCES GAS AR $22.00 $8.04
CALLON PETROELUEM OIL CPE $14.00 $7.98
CARRIZO OIL & GAS OIL CRZO $37.50 $12.42
CENTENNIAL RES DEV OIL CDEV $16.00 $9.98
CIMAREX ENERGY OIL XEC $120.00 $67.78
CONCHO RESOURCES OIL CXO $164.00 $112.45
CONTINENTAL RES OIL CLR $84.00 $41.92
EOG RESOURCES OIL EOG $136.00 $95.00
DIAMONDBACK ENERGY OIL FANG $162.00 $107.89
GULFPORT ENERGY GAS GPOR $20.00 $7.40
MATADOR RESOURCES OIL MTDR $32.00 $19.92
PARSLEY ENERGY OIL PE $36.00 $20.63
PDC ENERGY OIL PDCE $76.00 $37.59
PIONEER NAT RESOURCES OIL PXD $200.00 $151.65
RANGE RESOURCES GAS RRC $22.00 $9.59
SOUTHWESTERN ENERGY GAS SWN $9.80 $4.23
Valuation changes since my 4-30-2019 newsletter are explained below.
Sweet 16 Update - May 11
Sweet 16 Update - May 11
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Sweet 16 Update - May 11
Callon Petroleum (CPE): My valuation was lowered $2.50 per share to $14.00 because their production was down ~700 Boepd from Q4 to Q1 and it will drop again in Q2 because they are selling their Ranger Area assets. Not much change in my forecast, thanks to higher oil prices. However, I want to see their revised production guidance when they release Q2 results. I want to move Encana (ECA) into the Sweet 16, so CPE may be moving back to our Small-Cap Growth Portfolio.
Carrizo Oil & Gas (CRZO): My valuation increased $1.50 to $37.50 because they reported another "kick ass" quarter. Q1 production and Cash Flow from Operations beat my forecast, primarily because of their high realized oil price ($54.59/bbl in Q1). Carrizo is selling their Eagle Ford oil at a nice premium to WTI and I think they will beat the top end of their production guidance. IMO Carrizo is a "Screaming Takeover Target". There are rumors that Carrizo and SM Energy might merge. I definitely like the idea. IMO both of them are grossly under-valued and the combination would create a larger mid-cap with lots of running room, therefore drawing more Wall Street attention. This is a 1+1 = 2.5 deal if I ever saw one. SM is the larger company, so it would likely be the "Buyer".
Centennial Resource Development (CDEV): I am still very high on this company because of their Top Shelf management and lots of Tier 1 leasehold in the Delaware Basin. However, they have slowed production growth since over 90% YOY growth in 2018 because (a) pipeline bottlenecks in West Texas and (b) they dropped some rigs to live within cash flow. My valuation drops by $4.00 to $16.00 per share. NONE of their oil is hedged, so there is significant upside here if WTI moves over $65 and the pipeline issues are resolved, both of which I do expect to happen.
Cimarex Energy (XEC): I lowered my valuation by $2.00 to $120.00 just because of minor adjustments in the production mix. XEC is rock solid and a Prime Takeover Target.
Continental Resources (CLR): CLR is of my Top Picks this year. I have increased my valuation by $4.00 to $84.00. They recently completed three very important step-out wells in North Dakota that add hundreds of premium horizontal drilling locations to the company's very large stake in the Williston Basin. Plus, their "Project Springboard" development drilling program in the Oklahoma SCOOP play is off to a great start. If you haven't done so, you definitely should read our May 3rd profile on CLR.
Concho Resources (CXO): My valuation went up by $6.00 to $164.00 because of higher oil prices used in future periods. CXO is a prue play on the Permian Basin and another Prime Takeover Target.
Gulfport Energy (GPOR): My valuation declined by $1.00 to $20.00 just because of lower natural gas and NGL prices. Q1 results were very good and GPOR is on-track to be once again one of the most profitable Sweet 16 companies. Based on my forecast for 2019, GPOR's PE ratio is just over 5, which compares to the Sweet 16 average 2019 PE ratio of 18.9.
Matador Resources (MTDR) and Parsley Energy (PE): Valuations increased by $1.00 just because of higher oil prices.
PDC Energy (PDCE): My valuation goes up $2.00 to $76.00, but I can easily justify a much higher valuation. PDC is a "cash flow machine" with many years of low-risk development drilling inventory. The only thing holding this one down is the political environment in Colorado, which I don't see causing much problem for PDC since all of their best stuff is in Weld County.
Pioneer Natural Resources (PXD): My valuation increases by $10.00 to $200.00 because of better than expected Q1 results and increasing oil prices. PXD is a "Screaming Takeover Target" that is large enough to draw Chevron's attention. In a bidding war, PXD should draw offers of more than $300/share. Since PXD released Q1 results, four highly respected energy sector analysts have published new reports on the company. All four rate it a BUY with valuations of $185 to $215.
My valuations of Range Resources (RRC) and Southwestern Energy (SWN) are both up slightly - $0.50 and $0.30 - because they both reported solid Q1 results. All four of the "gassers" in the Sweet 16 (AR, GPOR, RRC and SWN) get most of their production from the Marcellus and Utica shale plays in PA, OH and WV where natural gas differentials have significantly improved thanks to increased pipeline capacity. Plus, they all have most of their production hedged at good prices.
Encana Corp (ECA): I will be spending time this coming week working up a valuation on ECA. Anna Engstrom, one of our SMU MBA "Super Stars" has completed her draft of the profile
Carrizo Oil & Gas (CRZO): My valuation increased $1.50 to $37.50 because they reported another "kick ass" quarter. Q1 production and Cash Flow from Operations beat my forecast, primarily because of their high realized oil price ($54.59/bbl in Q1). Carrizo is selling their Eagle Ford oil at a nice premium to WTI and I think they will beat the top end of their production guidance. IMO Carrizo is a "Screaming Takeover Target". There are rumors that Carrizo and SM Energy might merge. I definitely like the idea. IMO both of them are grossly under-valued and the combination would create a larger mid-cap with lots of running room, therefore drawing more Wall Street attention. This is a 1+1 = 2.5 deal if I ever saw one. SM is the larger company, so it would likely be the "Buyer".
Centennial Resource Development (CDEV): I am still very high on this company because of their Top Shelf management and lots of Tier 1 leasehold in the Delaware Basin. However, they have slowed production growth since over 90% YOY growth in 2018 because (a) pipeline bottlenecks in West Texas and (b) they dropped some rigs to live within cash flow. My valuation drops by $4.00 to $16.00 per share. NONE of their oil is hedged, so there is significant upside here if WTI moves over $65 and the pipeline issues are resolved, both of which I do expect to happen.
Cimarex Energy (XEC): I lowered my valuation by $2.00 to $120.00 just because of minor adjustments in the production mix. XEC is rock solid and a Prime Takeover Target.
Continental Resources (CLR): CLR is of my Top Picks this year. I have increased my valuation by $4.00 to $84.00. They recently completed three very important step-out wells in North Dakota that add hundreds of premium horizontal drilling locations to the company's very large stake in the Williston Basin. Plus, their "Project Springboard" development drilling program in the Oklahoma SCOOP play is off to a great start. If you haven't done so, you definitely should read our May 3rd profile on CLR.
Concho Resources (CXO): My valuation went up by $6.00 to $164.00 because of higher oil prices used in future periods. CXO is a prue play on the Permian Basin and another Prime Takeover Target.
Gulfport Energy (GPOR): My valuation declined by $1.00 to $20.00 just because of lower natural gas and NGL prices. Q1 results were very good and GPOR is on-track to be once again one of the most profitable Sweet 16 companies. Based on my forecast for 2019, GPOR's PE ratio is just over 5, which compares to the Sweet 16 average 2019 PE ratio of 18.9.
Matador Resources (MTDR) and Parsley Energy (PE): Valuations increased by $1.00 just because of higher oil prices.
PDC Energy (PDCE): My valuation goes up $2.00 to $76.00, but I can easily justify a much higher valuation. PDC is a "cash flow machine" with many years of low-risk development drilling inventory. The only thing holding this one down is the political environment in Colorado, which I don't see causing much problem for PDC since all of their best stuff is in Weld County.
Pioneer Natural Resources (PXD): My valuation increases by $10.00 to $200.00 because of better than expected Q1 results and increasing oil prices. PXD is a "Screaming Takeover Target" that is large enough to draw Chevron's attention. In a bidding war, PXD should draw offers of more than $300/share. Since PXD released Q1 results, four highly respected energy sector analysts have published new reports on the company. All four rate it a BUY with valuations of $185 to $215.
My valuations of Range Resources (RRC) and Southwestern Energy (SWN) are both up slightly - $0.50 and $0.30 - because they both reported solid Q1 results. All four of the "gassers" in the Sweet 16 (AR, GPOR, RRC and SWN) get most of their production from the Marcellus and Utica shale plays in PA, OH and WV where natural gas differentials have significantly improved thanks to increased pipeline capacity. Plus, they all have most of their production hedged at good prices.
Encana Corp (ECA): I will be spending time this coming week working up a valuation on ECA. Anna Engstrom, one of our SMU MBA "Super Stars" has completed her draft of the profile
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Sweet 16 Update - May 11
Remember that SEC accounting rules or Generally Accepted Accounting Principles ("GAAP") for hedges cause extremely misleading quarterly earnings for companies that hedge a lot of their production. If a company hedges a lot of their oil and the price of oil increases over 30% during the quarter, which just happened, then the company will have a BIG "mark-to-market" adjustment on the value of their hedges. The non-cash expense goes into the quarterly results even though the hedges might cover several years of production. IMO this is a stupid rule that was created by the Enron mess a decade ago and it needs to be fixed. The result is that companies now must report "Adjusted Earnings" each period.
Adjusted EPS is what should be compared to my forecasts and to First Call's EPS estimates.
Better yet, just focus on Operating Cash Flow per share. "Cash pays the bills, not GAAP earnings."
All of my forecast/valuation models highly Operating Cash Flow per share. All of my valuations are based on what I believe is a reasonable multiple of Operating Cash Flow Per Share.
Adjusted EPS is what should be compared to my forecasts and to First Call's EPS estimates.
Better yet, just focus on Operating Cash Flow per share. "Cash pays the bills, not GAAP earnings."
All of my forecast/valuation models highly Operating Cash Flow per share. All of my valuations are based on what I believe is a reasonable multiple of Operating Cash Flow Per Share.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group