Sweet 16 Q4 Results - Jan 29

[dan_s]

Bloomberg: Oil markets keep a wary eye on shale producers’ pledge for restraint
"Shale producers swear this time is different. After years of profligate spending and unchecked output helped trigger a series of oil-price crashes, U.S. explorers say they’ve learned from their mistakes. They’ve pledged to keep a lid on production, even as crude rebounds amid OPEC supply cuts and the outlook for a recovery from the pandemic-driven global economic collapse. Convincing the market is another matter, however."

We are still 2 or 3 weeks away from getting Q4 2020 results from most of our model portfolio companies.

> Q4 results should be slightly better than Q3 results, thanks in large part to higher natural gas and NGL prices. WTI oil price was actually down a bit from Q3 to Q4. The average of the daily closing prices for the front month NYMEX contracts for WTI were $40.90 in Q3 and $38.87 in Q4. Lots of the Sweet 16 had a high percentage of oil hedged in Q4 and West Texas oil price differentials did improve in Q4, so "realized oil prices" might be higher for the Permian Basin companies.

> Obviously, with oil, gas and NGL prices 20% to 30% higher today than they were in 2H 2020, the outlook for 2021 will look a lot better. For most of 2020 I reminded you all several times that the goal should be to "Survive 2020 to Thrive in 2021". We are just at the beginning of the GOOD PART of this oil price cycle.

> The CEOs are under pressure to "live within cash flow from operations" and the words "free cash flow" and "financial discipline" will be repeated many times on their conference calls. Any company foolish enough to announce a capex budget over projected cashflow is likely to get hammered.

> The Wall Street Gang will reward all companies that can hold production flat while spending 70% to 80% operating cash flow on D&C. FCF + production growth s/b rewarded.

> Most of the Sweet-16 have a lot of good leasehold that is held-by-production ("HBP"). Lots of HBP acreage makes them prime takeover targets since there is very little Tier 1 leasehold available in the major U.S. basins.

> The large-caps that pay a decent dividend (XEC, DVN, EOG, FANG, OVV, PXD) are the "safe bets" for large hedge fund managers.

> Year-end proven reserve reports will get a lot of attention.

Some of the companies will be putting out press releases next week with operations updates and some will pre-announce capital expenditure budgets. I will be reading them carefully and updating my forecast/valuation models as soon as I can.

I urge all of you to attend our webinar on Monday, February 1. Sabrina and I will be the presenters and will keep the Q&A open for as long as it takes to get to all of your questions.