Sweet 16 Update - Oct 25

dan_s · Post by **dan_s** » Sun Oct 25, 2020 8:53 am

The Sweet 16 main spreadsheet is now up to date with my current valuations based on $40 WTI in Q4 and $50 in 2021. I've also raised my natural gas price assumptions to $2.50 for Q4 and $3.00 for 2021. I am raising my NGL price assumptions as well, but that is more on a company by company basis since they all have a different mix of NGLs. Range Resources (RRC) is my #1 pick for NGLs.

The individual company forecast models have all been updated. At the bottom you can see the production mix (oil, ngas and NGLs) and the commodity price assumptions net of cash settlements on their hedges.

EQT Corp (EQT) is the only Sweet 16 company that has released Q3 results. It is a good reminder that "Reported Net Income" or "GAAP Net Income" is a worthless number for these upstream companies that have a lot of their production hedged. EQT report a large net loss because of a $681.4 million mark-to-market (non-cash) writedown on their hedges. Over the first three quarters of 2020 EQT has generated $1,028 million of operating cash flow and should generate approximately $420 million more in the 4th quarter thanks to increasing production and increasing ngas and NGL prices. Compare to this year's capex program of $1,075 million and you see that EQT will generate over $370 million of free cash flow this year. Based on my forecast of $3.00/mcf ngas, EQT should generate over $2.2 Billion of operating cash flow in 2021. You can find my updated forecast on the EPG home page.

My goal is to publish the newsletter on Monday, October 26. I will highlight five companies that are going to get a BIG revenue boost from higher gas prices.
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Piper Sandler has adjusted their price targets based on strip prices for oil & gas. Here are their price targets for the large-caps they follow.
CLR = $13
CXO = $82 < Soon to merge with COP
DVN = $16
EOG = $51 < They raised it to OW and I agree that EOG is a "Screaming Buy" at today's share price. EOG produces over 1.2 Bcfpd of natural gas and NONE OF IT IS HEDGE IN 2021.
FANG = $48
PXD = $106
XEC = $34 < One of my Top 5 picks for ngas