Sweet 16 Update - May 9
Posted: Sat May 09, 2020 11:13 am
I pegged the bottom of the Energy Sector Selloff as April 10th. That just "felt like" the gloom & doom peaked.
Since April 10 through the closing prices on May 8 our Sweet 16 Growth Portfolio is up 42.6%. Surprising to me was that EOG Resources (EOG) was the last one to move into the green. During the week ending May 8, EOG increased by more than 15% and is now up 14.79% since April 10.
Matador Resources (MTDR) leads the pack, up 137.07% followed by TALO (+77.73%), OAS (+76.47%) and RRC (+64.80%). Although these are impressive moves, all of these stocks were hammered at the beginning of the pandemic. It just took less FEAR to cause the rebounds.
13 of the 16 companies have reported Q1 results and I have updated all of those forecast/valuation models. All 13 meet my test of being positioned to "Survive 2020 so they can Thrive in 2021".
Heading into May the three companies that will report Q1 results next week had the HIGHEST RISK: Callon Petroleum (CPE), Continental Resources (CLR) and Oasis Petroleum (OAS).
Here is what I'm expecting them to report:
CPE: Operating Cash Flow of $178.2 million ($0.45/share) on Adjusted Net Income of $36.5 million ($0.09/share) with Q1 production of 100,500 Boepd. < First full qtr since merger with CRZO.
CLR: Operating Cash Flow of $563.6 million ($1.52/share) on Adjusted Net Income of $13.6 million ($0.04/share) with Q1 production of 353,000 Boepd. < CLR has already announced a big drop in production from Q1 to Q2 because they are shutting in as much Bakken production as they can.
OAS: Operating Cash Flow of $139.6 million ($0.43/share) on Adjusted Net Loss of $47.5 million ($0.15/share) with Q1 production of 78,000 Boepd. < This one has the MOST RISK because the Williston Basin (Bakken + Three Forks) has the lowest netback oil prices and a big chunk of Oasis' oil hedges roll off at the end of June. At the current NYMEX strip, Oasis should be able to remain operating cash flow positive, but it will be tight in Q3. My forecast already assumes a 13.7% YOY decline in production (6,500 Boepd below the low end of the company's guidance), but they are going to need to slash their CapEx budget and "hunker down". As bad as this sounds, there is significant upside with OAS because if WTI rebounds to over $50/bbl in 2021, the company's operating cash flow per share should be 3X the current share price.
The Sweet 16 main spreadsheet has been updated and it will be posted to the EPG website this afternoon.
> Under Tab 1 you can find each company's market cap and my current EPS and CFPS forecasts for 2020. Next week I will break out 2020 by quarter and show my EPS forecast for 2021.
> Under Tab 2 you can find my current per share valuation for each stock and First Call's price targets. Proven Reserves as of 12/31/2019 are also shown for each company.
Keep in mind that during periods of significant moves up or down in commodity prices, the "Reported Net Income" for each company is meaningless. Focus primarily on Operating Cash Flow and production & CapEx guidance. This is what identifies the companies that will survive.
As posted earlier this week, I've decided to move Solaris Oilfield Infrastructure (SOI) back to the Small-Cap Growth Portfolio. It is rock solid and should be in great shape to gain market share when oil prices rebound.
PS:
All the opinion piece about U.S. oil production rebounding quickly if WTI moves over $30/bbl are IMO total "Click Bait" BS. Wall Street will crush any upstream company that starts outspending operating cash flow and there are very few if any economic drilling locations at $30 WTI.
I will be adding at least one more "gasser" to the portfolio.
Since April 10 through the closing prices on May 8 our Sweet 16 Growth Portfolio is up 42.6%. Surprising to me was that EOG Resources (EOG) was the last one to move into the green. During the week ending May 8, EOG increased by more than 15% and is now up 14.79% since April 10.
Matador Resources (MTDR) leads the pack, up 137.07% followed by TALO (+77.73%), OAS (+76.47%) and RRC (+64.80%). Although these are impressive moves, all of these stocks were hammered at the beginning of the pandemic. It just took less FEAR to cause the rebounds.
13 of the 16 companies have reported Q1 results and I have updated all of those forecast/valuation models. All 13 meet my test of being positioned to "Survive 2020 so they can Thrive in 2021".
Heading into May the three companies that will report Q1 results next week had the HIGHEST RISK: Callon Petroleum (CPE), Continental Resources (CLR) and Oasis Petroleum (OAS).
Here is what I'm expecting them to report:
CPE: Operating Cash Flow of $178.2 million ($0.45/share) on Adjusted Net Income of $36.5 million ($0.09/share) with Q1 production of 100,500 Boepd. < First full qtr since merger with CRZO.
CLR: Operating Cash Flow of $563.6 million ($1.52/share) on Adjusted Net Income of $13.6 million ($0.04/share) with Q1 production of 353,000 Boepd. < CLR has already announced a big drop in production from Q1 to Q2 because they are shutting in as much Bakken production as they can.
OAS: Operating Cash Flow of $139.6 million ($0.43/share) on Adjusted Net Loss of $47.5 million ($0.15/share) with Q1 production of 78,000 Boepd. < This one has the MOST RISK because the Williston Basin (Bakken + Three Forks) has the lowest netback oil prices and a big chunk of Oasis' oil hedges roll off at the end of June. At the current NYMEX strip, Oasis should be able to remain operating cash flow positive, but it will be tight in Q3. My forecast already assumes a 13.7% YOY decline in production (6,500 Boepd below the low end of the company's guidance), but they are going to need to slash their CapEx budget and "hunker down". As bad as this sounds, there is significant upside with OAS because if WTI rebounds to over $50/bbl in 2021, the company's operating cash flow per share should be 3X the current share price.
The Sweet 16 main spreadsheet has been updated and it will be posted to the EPG website this afternoon.
> Under Tab 1 you can find each company's market cap and my current EPS and CFPS forecasts for 2020. Next week I will break out 2020 by quarter and show my EPS forecast for 2021.
> Under Tab 2 you can find my current per share valuation for each stock and First Call's price targets. Proven Reserves as of 12/31/2019 are also shown for each company.
Keep in mind that during periods of significant moves up or down in commodity prices, the "Reported Net Income" for each company is meaningless. Focus primarily on Operating Cash Flow and production & CapEx guidance. This is what identifies the companies that will survive.
As posted earlier this week, I've decided to move Solaris Oilfield Infrastructure (SOI) back to the Small-Cap Growth Portfolio. It is rock solid and should be in great shape to gain market share when oil prices rebound.
PS:
All the opinion piece about U.S. oil production rebounding quickly if WTI moves over $30/bbl are IMO total "Click Bait" BS. Wall Street will crush any upstream company that starts outspending operating cash flow and there are very few if any economic drilling locations at $30 WTI.
I will be adding at least one more "gasser" to the portfolio.