Energy Prospectus

During the week ending March 19 the Sweet 16 portfolio lost 12.46% and is now up 66.14% YTD. Most of last week's lost took place on Tuesday when oil prices fell sharply. There was a decent rebound on Friday. The S&P 500 Index lost 0.81% last week and it is now up 4.18% YTD.

Since last Saturday we published updated profiles on:
> Callon Petroleum (CPE) with valuation of $57.00
> EQT Corp. (EQT) with valuation of $26.00
> Ovintiv (OVV) with valuation of $35.00
> PDC Energy (PDCE) with valuation of $53.00
You can download the profiles and the updated forecast/valuation models from the EPG website.

In addition, the profiles for XEC, CRK, CLR and PXD are also updated and they can be found under the Sweet 16 tab on our website.

Callon Petroleum (CPE) leads the pack, up 186.56% YTD, but it still has a lot of upside for us. My updated forecast for 2021 shows earnings per share of $7.90 and operating cash flow per share of $19.24. The only negative is that they've hedged ~2/3rds of this years oil at prices in the mid-$40s. In my opinion, the Wall Street Gang still doesn't appreciate how accretive the merger with Carrizo is going to be.

Sitting here for my review are updated profiles on AR, DVN, EOG, FANG and RRC. We have four super sharp MBAs that prepare the profiles and I review them carefully before they are published. My goal is to get all of the Sweet 16 profiles updated by the end of next week.

My weekly podcast will be on the EPG website late this afternoon.

WTI closed at $61.44/bbl on March 19.
All of my Sweet 16 valuations are based on WTI prices of $55 in Q1, $60 in Q2 and $65 in Q3 & Q4.

WTI crude oil prices gained 2.4% to $61.44 per barrel on Friday while Brent prices advanced 1.8% to trade at $64.43 per barrel, rebounding modestly but still booking their worst week since October. On Thursday, prices dropped more than 7% as a new wave of coronavirus infections across Europe dampened expectations of any imminent recovery in fuel demand. Several economies reimposed lockdowns and vaccination programs were slowed by concerts over potential side effects. Meanwhile, US drillers added nine oil rigs in the week, the biggest increase since January. During the week, prices dropped nearly 6%.

Just remember that oil and gas price moves based on FEAR seldom last long. Supply & Demand Fundamentals drive oil prices and global oil inventories are declining by more than 2 million bpd.

I drove back from Dallas on Thursday and based on the truck traffic that I saw the U.S. economy is coming back strong.

OECD inventories of crude oil and refined products are the primary drivers of crude oil prices.

From the IEA's March "Oil Market Report"
"OECD industry stocks fell for the sixth consecutive month in January. A monthly decline of 14.2 mb left inventories at 3 023 mb, 63.2 mb above their 2016-2020 average. Crude oil stocks led the fall with a counter-seasonal 23.7 mb draw. February data for the US, Europe and Japan show that total industry stocks fell by 52.6 mb (1.88 mb/d) in total, led by lower gasoline and middle distillate stocks in the US."

It is important to note the words "counter-seasonal" because demand for oil based products in seasonal and Q1 is the lowest demand period of the year. Demand for transportation fuels picks up in April and peaks in June/July. This is the time of the year when crude oil inventories must build so that refiners have the raw material to make the fuels and materials that this world runs on. Rapidly falling OECD inventories are why some of the Wall Street Gang are now forecasting $80 oil in Q3.