Sweet 16 Update - Oct 11

[dan_s]

Oil and gas prices were up last week and our Sweet 16 portfolio gained 11.5% over the two weeks ending October 9.

We published a profile on Devon Energy (DVN) on October 8 and I urge you to read it carefully.
> Since the Company announced that they will be merging with WPX Energy six analysts have updated their valuations. All six rate it a BUY with price targets of $16.00 to $18.00.
> Devon's current dividend is $0.11/Qtr for annual yield of 4.37% based the Oct 9 closing price. Based on my forecast, they s/b doubling their dividend next year.
> After the merger Devon's production ~560,000 BOE per day with a production mix of approximately 52% crude oil, 28% natural gas and 20% NGLs. Ngas and NGL prices are going a lot higher this winter. Oil prices will probably stay pressured through mid-2021, until refined product inventories are normalized.
> The sale of their Barnett Shale package shores up an already super strong balance sheet.
> Devon has been promoted to the "Elite Eight".
READ THIS: https://www.fool.com/investing/2020/10/ ... right-now/

Assuming we are FINNALLY past the Gulf of Mexico hurricane season, Talos Energy (TALO) should double over the next six months.
> Thanks to hurricane related shut-ins, production will be down ~6,000 Boepd from Q2 to Q3 to ~46,500 Boepd.
> Production will ramp up sharply in Nov. & Dec. to an exit rate of ~72,000 Boepd. < Big production boost expected from the Kaleidoscope well (Talos has 100% working interest).
> Most of their 2020 CapEx spending will be completed by the end of November and they should generate over $50 million of FCF from operations in Q4.
> Puma West exploration well has a lot of upside for Talos. It is operated by BP and Talos holds a 25% working interest.
> Zama Field development should begin next year.
The day after the Company's guidance update (Oct 8) two analysts updated their price targets.
> Subash Chandra at Northland Securities rates TALO a BUY with an $18.00 price target
> Leo Mariani at KeyBanc rates TALO a BUY with a $14.00 price target.
> 8 Wall Street analysts' estimates are included in the First Call price target of $15.22, but four of them are dated prior to Talo's Q2 results came out. Keep in mind that the older reports are based on much lower oil & gas prices than we have today.

I talked to Range Resources (RRC) on Friday. The purpose of my call was to set up a special webinar late this month to focus on the rapidly tightening U.S. natural gas and NGL markets.

If you watched my October 10 podcast you know that even the folks at EIA are now extremely bullish on natural gas and NGL prices. By the end of October the front month NYMEX contract for natural gas (DEC 20) will go over $3.00/MMBtu and I think it will spike to over $4.00 in December if we have a cold start to winter. My favorite gassers (CRK, EQT, RRC, GDP and GPOR) should double if the 2021 Strip goes over firmly over $3.00 (it closed at $2.99 on October 9). All of the Sweet 16 will get a revenue boost from higher ngas and NGL prices.