Sweet 16 Update - Dec 26
Posted: Sat Dec 26, 2020 6:29 pm
I hope all of you had a good Christmas and I know all of us are eager to put 2020 in the rearview mirror. If the Covid-19 vaccines work, 2021 should be the beginning of a strong rebound for the U.S. and global economies. If everything lines up as expected, we should see a strong rebound in demand for oil, gas and NGLs.
I've decided to add Earthstone Energy (ESTE) back to the Sweet 16 to replace Parsley Energy (PE), which is merging with Pioneer Natural Resources (PXD) on January 12th. Because of their size, Laredo Petroleum (LPI) and SM Energy (SM) were also contenders, but the acquisition that Earthstone announced last week put them in the lead.
My updated valuation of ESTE is $9.00, but there is upside beyond that if their 2021 guidance confirms my model assumptions.
I like the PE + PXD merger and I can justify a higher valuation than $130 for PXD. Stifel's 12/18 valuation of PXD is $152.00. My proforma forecast doesn't include the savings they expect to get from the merger. Lots of the savings will come from all of the PE employee layoffs (very sad) that have been announced.
Gassers: Today's weather is cold around the big cities in the Great Lakes region (bullish for ngas and propane demand) and a major winter storm is going to move across the upper half of the country next week. Cold + high winds burns up a lot of gas.
All of our gassers (AR, CRK, EQT, RRD, GDP and SBOW) have a lot of their Q4 and Q1 gas hedged at good prices, so the recent pullback in gas prices has very little impact on their cash flow. The "beyond winter" outlook for gas and NGL prices is quite bullish because gas storage will be drained below the 5-year average even with a mild winter thanks to the big increase in ngas exports. Refilling gas storage is not an option and it will require much higher gas prices to get the large-cap gassers to increase their drilling budgets.
Last week I increased my valuations for FANG and TALO.
My goal is to publish my December newsletter on 12/29.
The updated Sweet 16 spreadsheet will be up on the EPG website on Sunday. It shows my up-to-date valuations and First Call's current price target for each company.
The "45-Day rule" only applies to stocks sold at a loss. If you have losses that can offset unrecognized gains, harvest some gains and buy the stocks back a day or two later.
The Sweet 16 is up 103.73% since April 10th, so you should have a few gains to choose from.
I've decided to add Earthstone Energy (ESTE) back to the Sweet 16 to replace Parsley Energy (PE), which is merging with Pioneer Natural Resources (PXD) on January 12th. Because of their size, Laredo Petroleum (LPI) and SM Energy (SM) were also contenders, but the acquisition that Earthstone announced last week put them in the lead.
My updated valuation of ESTE is $9.00, but there is upside beyond that if their 2021 guidance confirms my model assumptions.
I like the PE + PXD merger and I can justify a higher valuation than $130 for PXD. Stifel's 12/18 valuation of PXD is $152.00. My proforma forecast doesn't include the savings they expect to get from the merger. Lots of the savings will come from all of the PE employee layoffs (very sad) that have been announced.
Gassers: Today's weather is cold around the big cities in the Great Lakes region (bullish for ngas and propane demand) and a major winter storm is going to move across the upper half of the country next week. Cold + high winds burns up a lot of gas.
All of our gassers (AR, CRK, EQT, RRD, GDP and SBOW) have a lot of their Q4 and Q1 gas hedged at good prices, so the recent pullback in gas prices has very little impact on their cash flow. The "beyond winter" outlook for gas and NGL prices is quite bullish because gas storage will be drained below the 5-year average even with a mild winter thanks to the big increase in ngas exports. Refilling gas storage is not an option and it will require much higher gas prices to get the large-cap gassers to increase their drilling budgets.
Last week I increased my valuations for FANG and TALO.
My goal is to publish my December newsletter on 12/29.
The updated Sweet 16 spreadsheet will be up on the EPG website on Sunday. It shows my up-to-date valuations and First Call's current price target for each company.
The "45-Day rule" only applies to stocks sold at a loss. If you have losses that can offset unrecognized gains, harvest some gains and buy the stocks back a day or two later.
The Sweet 16 is up 103.73% since April 10th, so you should have a few gains to choose from.