Sweet 16 Update - Feb 20

[dan_s]

Posting this late on Feb 19. I will have more to add on Saturday.

I have update the forecast/valuation models for all six companies that have released Q4 results and updated 2021 guidance this past week. All six did well and I have increased my valuations because (a) I am using higher oil & gas prices in all of the updated models and (b) higher multiples of operating cash flow are justified with the higher level of confidence in 2021 forecasts now that the companies have clarified their 2021 drilling programs and I have update hedges.

Here are the commodity prices I am using in updated models
WTI oil price: $50 for Q1, $55 for Q2, $57.50 for Q3 and $60 for Q4 and 2022
HH ngas price: $2.75 for Q1, $2.75 for Q2, $2.75 for Q3, $3.00 for Q4 and $3.00 for 2022 < I believe we may see a BIG increase in gas prices when storage goes below the 5-yr average next week.
NGL prices are on a company by company based on what I am seeing for their NGL mix in Q4. Propane prices are going a lot higher this quarter.

I am valuing each company based on a reasonable multiple of operating cash flow for 2020 to 2022, but I am double weighting 2021.
So, the formula is operating cash flow for (2020 actual + 2X 2021 estimate + 2022 estimate)/4 X a multiple that I believe is appropriate for strength of balance sheet, ability to grow production while generating free cash flow and running room. All of the models take hedging programs and "running room" into consideration.

Here are my updated valuations for the six companies that have reported Q4 results this past week.
$12.00 for AR < Largest NGL producer in the U.S. and still trading way below book value per share.
$11.00 for CRK < Big increase in production from Q3 to Q4 and probably deserves a much higher valuation if ngas stays over $3.00
$32.50 for CLR < None of their oil is hedged
$33.00 for DVN < They have raised their dividends
$26.00 for EQT < Largest natural gas producer in the U.S.
$27.00 for OVV < Q4 beat expectations and the company should generate over $1Billon of free cash flow this year.

I will be travelling Feb 21 to 23 but as soon as I get back I will update the forecast/valuations for XEC and FANG that will report Q4 results on Feb 22.
Reporting q4 results on Feb 22: FANG. XEC
Reporting Q4 results on Feb 23: MTDR, PXD, RRC
Reporting Q4 results on Feb 24: CPE, PDCE,
Reportig Q4 results on Feb 25: EOG

[dan_s]

After listening to yesterday's webinar hosted by Earthstone Energy (ESTE) I have updated my forecast/valuation model for the company and I am raising my valuation by $2.50 to $12.50.

We will be sending out a replay of the webinar. You can also watch it directly from the EPG website. I urge all of you to watch it. ESTE should be a double for us this year.

We have two webinars scheduled for early March.