Sweet 16 Update - Dec 19
Posted: Sat Dec 19, 2020 11:12 am
The Sweet 16 pulled back 7.18% during the week ending December 18th. Since April 10th it is up 103.26%, which compares to the S&P 500 Index gain of 32.96% during that period.
Antero Resources (AR) was the only stock up during the week that ended December 17th as they took another step to better align their debt. The balance sheet is in much better shape than it was at the end of Q1 and their hedge book locks in operating cash flow of approximately $315 million for Q4 2020 and $1,535 million for 2021. Free cash flow from operations should be over $500 million in 2021 with over 95% of their natural gas hedged at $2.80/MMBtu. My valuation of $9.00/share will be going up if their 2021 guidance confirms my forecast.
It has been a bad year for Jerry Jones. The Dallas Cowboys lost their star quarterback early in the season and their defense really sucks, plus Comstock Resources (CRK) is the only Sweet 16 stock that is down since April 10. Jerry owns ~75% of CRK. Since my last profile on the company, dated November 10th, two other analyst have published reports on Comstock.
> 11/11/2020: Derrick Whitfield at Stifel Nicolaus rated it a Buy with a price target of $9.10, which is $1.50 higher than his price target a month earlier.
> 11/11/2020: Kashy Harrison at Piper Sandler rated it Overweight with a price target of $7.00; $1.00 lower than his previous price target.
> 12/15/2020: Truist analyst Welles Fitzpatrick downgraded Comstock Resources to Hold from Buy with no price target.
> FWIW First Call's price target is $8.33.
2021 CapEx Program: Comstock currently plans to spend approximately $525.0 to $575.0 million in 2021 on drilling and completion activities primarily focused in the Haynesville/Bossier shale. The Company is currently planning to operate six rigs for the first half of 2021 and seven rigs for the remainder of the year and expects to drill 70 (56.5 net) and complete 65 (56.6 net) operated horizontal wells. MY TAKE: This program should increase production by ~10% YOY and generate over $750 million of operating cash flow.
98% of Comstock's production is natural gas, primarily Haynesville dry gas that gets close to Henry Hub pricing. I have lowered my valuation of CRK to $8.00. I lowered my forecast realized gas price (including cash settlements on their hedges) to $2.60/mcf and I have lowered the operating cash flow per share multiple to 3X from 4X. This is a low valuation multiple for a company that is generating FCF from operations today and should generate a lot more FCF in 2021.
Of the other three "gassers" (AR, EQT and RRC) all look like they have a lot more upside. We should get a bullish natural gas storage report from EIA next week. If you watched our webinar on Friday morning you know that the outlook for natural gas and NGL prices is MUCH BETTER than it was a year ago. All three of these companies produce a lot of high value NGLs.
Talos Energy (TALO) announced the upsizing and pricing of their $500 debt offering. It pushes out the maturity date of their debt, which is a good thing. TALO closed Friday at less than half of my valuation of $17.50. Subash Chandra at Northland Securities rated it a BUY on 12/08/20 with a price target of $19.00.
Continental Resources (CLR) and EOG Resources (CLR) have the most exposure to rising oil prices because none of their oil is hedged.
The leading candidates to replace Parsley Energy (PE) because it is merging with Pioneer Natural Resources (PXD) are:
> Earthstone Energy (ESTE) that announced a BIG acquisition on December 17th.
> Laredo Petroleum (LPI)
> Penn Virginia (PVAC), which we profiled on Thursday afternoon.
We have now entered the Christmas + New Years period of very light trading when stock prices can make some big moves on light trading.
Antero Resources (AR) was the only stock up during the week that ended December 17th as they took another step to better align their debt. The balance sheet is in much better shape than it was at the end of Q1 and their hedge book locks in operating cash flow of approximately $315 million for Q4 2020 and $1,535 million for 2021. Free cash flow from operations should be over $500 million in 2021 with over 95% of their natural gas hedged at $2.80/MMBtu. My valuation of $9.00/share will be going up if their 2021 guidance confirms my forecast.
It has been a bad year for Jerry Jones. The Dallas Cowboys lost their star quarterback early in the season and their defense really sucks, plus Comstock Resources (CRK) is the only Sweet 16 stock that is down since April 10. Jerry owns ~75% of CRK. Since my last profile on the company, dated November 10th, two other analyst have published reports on Comstock.
> 11/11/2020: Derrick Whitfield at Stifel Nicolaus rated it a Buy with a price target of $9.10, which is $1.50 higher than his price target a month earlier.
> 11/11/2020: Kashy Harrison at Piper Sandler rated it Overweight with a price target of $7.00; $1.00 lower than his previous price target.
> 12/15/2020: Truist analyst Welles Fitzpatrick downgraded Comstock Resources to Hold from Buy with no price target.
> FWIW First Call's price target is $8.33.
2021 CapEx Program: Comstock currently plans to spend approximately $525.0 to $575.0 million in 2021 on drilling and completion activities primarily focused in the Haynesville/Bossier shale. The Company is currently planning to operate six rigs for the first half of 2021 and seven rigs for the remainder of the year and expects to drill 70 (56.5 net) and complete 65 (56.6 net) operated horizontal wells. MY TAKE: This program should increase production by ~10% YOY and generate over $750 million of operating cash flow.
98% of Comstock's production is natural gas, primarily Haynesville dry gas that gets close to Henry Hub pricing. I have lowered my valuation of CRK to $8.00. I lowered my forecast realized gas price (including cash settlements on their hedges) to $2.60/mcf and I have lowered the operating cash flow per share multiple to 3X from 4X. This is a low valuation multiple for a company that is generating FCF from operations today and should generate a lot more FCF in 2021.
Of the other three "gassers" (AR, EQT and RRC) all look like they have a lot more upside. We should get a bullish natural gas storage report from EIA next week. If you watched our webinar on Friday morning you know that the outlook for natural gas and NGL prices is MUCH BETTER than it was a year ago. All three of these companies produce a lot of high value NGLs.
Talos Energy (TALO) announced the upsizing and pricing of their $500 debt offering. It pushes out the maturity date of their debt, which is a good thing. TALO closed Friday at less than half of my valuation of $17.50. Subash Chandra at Northland Securities rated it a BUY on 12/08/20 with a price target of $19.00.
Continental Resources (CLR) and EOG Resources (CLR) have the most exposure to rising oil prices because none of their oil is hedged.
The leading candidates to replace Parsley Energy (PE) because it is merging with Pioneer Natural Resources (PXD) are:
> Earthstone Energy (ESTE) that announced a BIG acquisition on December 17th.
> Laredo Petroleum (LPI)
> Penn Virginia (PVAC), which we profiled on Thursday afternoon.
We have now entered the Christmas + New Years period of very light trading when stock prices can make some big moves on light trading.