Sweet 16 Update - August 8

[dan_s]

All of the Sweet 16 Q2 results were just as ugly as expected, but the outlook for 2H 2020 is much better.

I still need to update the forecast/valuation model for Parsley Energy (PE) and then I will get the Sweet 16 Summary Spreadsheet updated.

Despite the 2nd quarter stuck in "Coronavirus World", all 16 companies generated solid cash flow from operations thanks primarily to their hedges. EOG collected $639.4 million cash on their hedges in Q2 which compares to their adjusted cash flow from operations of $651 million. Hedges are very important this year. EOG has raised their production guidance for 2H 2020.
Four Wall Street firms updated their reports for EOG on Friday. Their valuations range from $56 to $85. EOG pays a dividend of $1.50/year and should be able to double it in 2021 if WTI gets over $50/bbl. My valuation increases $6 to $69.

I made an hour long presentation to a Houston based investment club this morning. The 30 minute version will be this week's podcast, which should be up on our website soon.

Near the end I discuss the very bullish move by natural gas last week. The 2021 NYMEX strip for natural gas moved over $2.80/MMBtu last week. That is VERY GOOD NEWS for all of our gassers.

[k1f]

<<That is VERY GOOD NEWS for all of our gassers.>>

Agreed. What do you make of Gulfport's punishment Fri?

[dan_s]

My focus has been on the Sweet 16. I hope to catch up on all of other companies next week. By "punishment" I assume you mean the share price dip. Lots of the 60 plus companies I follow were down on Friday.

The market is reacting to "Reported Net Income or Loss" when investors should be focusing on Adjusted Net Income and most important is Operating Cash Flow. All of the following beat my forecast by a wide margin.

For the 2nd quarter Gulfport reported:
Reported adjusted net income (non-GAAP) of $47.1 million, or $0.29 per diluted share for the second quarter < Compares to First Call's EPS forecast of 1 cent.
Generated adjusted EBITDA (non-GAAP) of $145.0 million for the second quarter
Reported cash provided by operating activities of $116.4 million for the second quarter
Generated operating cash flow (non-GAAP), excluding working capital changes, of $97.9 million for the second quarter < This compares to my forecast of $56.9 million.
Generated free cash flow (non-GAAP) of $43.9 million for the second quarter

Some debt holders may try to force a takeover of the company because they know it has good assets. However, if they force Gulfport into Chapter 11 only the lawyers win.

Balance Sheet and Liquidity (this sure doesn't sound like a company that needs Chapter 11 protection)
"As of June 30, 2020, the Company’s liquidity totaled approximately $255.7 million, comprised of the $700 million borrowing base plus approximately $2.8 million in cash on hand less $324.1 million outstanding letters of credit and $123.0 million of revolver draw." Plus, they are now generating all the cash needed to pay their bills and FCF to pay down debt.

I will spend more time looking at GPOR next week.

[dan_s]

I updated my Gulfport forecast on Monday, August 10. See my comments under the Picks and Tips tab since GPOR is not in the Sweet 16.