Energy Prospectus

I've updated the Sweet 16 Main Spreadsheet and it will be posted to the EPG website this evening. I also just finished the podcast and sent it over to Sabrina for posting to the EPG website.

The S-16 had a good week and is now up 87.4% since bottoming on April 10th (Good Friday). The S&P 500 Index is also on a nice roll, up 14.48% since April 10. In addition to being Good Friday, in my opinion April 10th was when COVID-19 Gloom & Doom peaked. The new "Click Bait" is the tribal warfare ginned up by cable news to increase ratings. America will survive, but from time-to-time the natives have to fight.

Concho Resources (CXO), Matador Resources (MTDR) and Pioneer Natural Resources (PXD) have moved over my estimated fair value. As I explain in the podcast, all of the stock valuations in the May 26th newsletter are based on much lower oil price assumptions for Q2 and Q3 than we have today. Plus, just less FEAR is responsible for much of the rebound in stock prices.

Callon Petroleum (CPE) made a nice move last week (up 170.59% since April 10th) primarily because of less FEAR. It is now on-track to generate over $125 million of FREE CASH FLOW FROM OPERATIONS during Q2 to Q4 2020 and the debt holders would be fools to call the debt. CPE's risk of needing Chapter 11 protection is now close to zero. FEAR creates outstanding short-term investment opportunities for those who can step back and see what's really going on. It helps to have an accurate forecast model. BTW ~95% of CPE's Q2 to Q4 oil production is hedged at $43/bbl.

Ovintiv (OVV) also made a big move last week. It is almost a "gasser", so if I'm right about gas prices it has another leg up for us later this year.

For the rest of this month, my focus will be on updating all of the profiles for our Small-Cap and High Yield Income portfolio companies.
Profiles on Goodrich Petroleum (GDP) and Gulfport Energy (GPOR) will be sent out on Monday.

Catching up on my reading today.
On June 4th Stifel sent out a new report on upstream companies that will be restoring shut-in production in June.

Stifel's updated target prices on three of the Sweet 16 mentioned in the report
> Cimarex Energy (XEC) = $47.00, which compares to my valuation of $34.00
> Parsley Energy (PE) = $16.00, which compares to my valuation of $15.00
> PDC Energy (PDCE) = $22.00, which compares to my valuation of $25.00

Stifel's June 4th Comments Below

Some E&Ps Restoring Production...

In our 5/28/20 note, 1Q20 Review: U.S. E&Ps Contribute to OPEC+ Cuts and Suggest New Phase for Shale, we anticipated that much of the
U.S. production that was shut-in during May would come back online in June following an 76% increase in near-month oil prices. Our oil E&P
universe was expected to curtail at least 830 Mboepd from its May output due to low oil prices (Figure 1). Combined with announcements
from several large uncovered integrated and independent companies, reductions approached 2 MMBoepd while unannounced curtailments
from numerous private and smaller uncovered public companies likely pulled May volumes down further.

Earlier this week, PE announced that it expects to restore the vast majority of the 26 MBopd (~20% of company-wide oil volumes) it curtailed
during May beginning in early June. Likewise, WPX, which shut-in 20% of its oil volumes during May, also noted this week that it has begun
brining wells back online with the recent oil price recovery.

We look for a similar response from some other E&P companies with low cash costs. In particular, we believe PDCE, which has the lowest
cash cost in our mid-cap group, and XEC, which has the lowest cash cost in our bellwether group, are well positioned to restore curtailed
volumes (Figure 2). As such, we are raising our PDCE and XEC 2Q20 oil production estimates by 7% and 4%, which are now 8% and 9%
above consensus, respectively (Figure 3).

..Others Could Be Slower to Respond
We suspect additional companies are likely to bring wells back online this month although decisions to shut-in and restore volumes can be
complicated by numerous factors. For example, EOG, which planned to shut-in 85 MBopd in 2Q20, or ~18% of its oil production, recently
encouraged investors to follow its quarterly guidance calling for a slow restoration of volumes over the course of the year despite the oil
price rebound. Management noted that some wells were generating positive operating cash flow at the time they were shut-in. In another
example, CLR shut-in 70% of its operated production during May but appears unlikely to quickly revive output after management publicly
urged Oklahoma and North Dakota to regulate production at the state level to help stabilize oil prices.