The Sweet 16 Portfolio lost 4.1% last week and is now up 52.7% YTD. The S&P 500 Index was down slightly and is now up 11.3% YTD.
On April 23 Baker Hughes reported that the North American Active Drilling Rig count declined by 2; one less rig in the Gulf of Mexico and one less rig in Canada. In the U.S. the number of rigs drilling for oil declined by 1 to 343 and the number or rigs drilling for natural gas remains at 94. The active rig count is still too low to increase U.S. oil production. I don't expect any of the Sweet 16 to expand their drilling programs unless oil prices go a lot higher.
The head of Vitol Group, the world’s biggest independent oil trader, expects crude demand to come roaring back this year as the world emerges from the pandemic. Demand for crude will increase by 7 million to 8 million barrels a day by the end of 2022, up from current levels, and producers will be stretched to meet that surge, Vitol Chief Executive Officer Russell Hardy said in an interview. “Upstream companies will need to run on all eight cylinders to get through 2022." “We believe $70 to $75 a barrel is an entirely sensible outcome for the third quarter of 2021,” he said, making a rare specific call on oil prices.
Q1 results will start rolling out next week. AR, CLR and OVV are expected to announce Q1 results on April 28.
I will post my initial thoughts on their results here and I will update my forecast/valuation models for each company as soon as I can after they release.
Many of the companies were impacted by Winter Storm Uri in late February, but higher commodity prices more than offset the temporary decline in production. Cimarex (XEC) and Devon (DVN) seem to have lost the most production (7% to 8%) as a result of the storm, but they were able to sell some gas at very high spot prices to more than make up for lost volumes. All shut-ins as a result of the storm came back on-line quickly.
Last week, I spent some time working on XEC, CLR and FANG; raising my valuations to $96, $48 and $115.
NONE of the Sweet 16 are trading anywhere close to reasonable valuations if you believe WTI will stay over $60/bbl. If Russell Hardy's prediction of $70 oil in Q3 is correct (Goldman Sachs is sticking with their forecast of $80/bbl Brent by August), there are a lot of doubles in this group.
I expect to see much higher realized NGL prices reported for Q1.
The updated Sweet 16 spreadsheet showing my valuations and First Call's price targets for each company will be posted to the EPG website this afternoon.
Sweet 16 Update - April 24
Sweet 16 Update - April 24
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Sweet 16 Update - April 24
Keep in mind that upstream companies with a high percentage of their oil production hedged will have to report large non-cash mark-to-market writedowns to the value of their remaining hedges. Those MTM adjustments required by GAAP and SEC accounting rules do not impact my cash flow from operations forecast, which are the basis for my valuations.
On the other hand our "gassers" should book positive MTM adjustments on their natural gas hedges.
Focus on cash flow, not reported earnings. "Cash pays the bills."
You can find details for each companies hedges at the bottom of my forecast/valuation models.
On the other hand our "gassers" should book positive MTM adjustments on their natural gas hedges.
Focus on cash flow, not reported earnings. "Cash pays the bills."
You can find details for each companies hedges at the bottom of my forecast/valuation models.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Sweet 16 Update - April 24
Oil Prices
Oil futures regained ground on Friday, with WTI crude settling above the $62 a barrel level after upbeat economic data for the US, including PMIs and new homes sales, lifted hopes of a fast recovery in fuel demand. In Europe, flash PMIs also pointed to economic recovery, and some countries, including France, start to ease restrictions. Still, rising coronavirus infections in some parts of Asia capped gains. Pressuring prices further this week were EIA data showing a surprise US inventory build. As a result, the US benchmark finished the week almost 2% lower while Brent ended it down 1%.
Natural Gas Prices
NYMEX natural gas futures were trading around the $2.77/MMBtu level in the third week of April, a level not seen in more than a month, as forecasts for cooler weather and higher heating demand this week lent optimism to gas bulls. On top of that, a smaller than expected increase in the amount of natural gas in storage, record exports and a recent decline in production kept sentiment elevated.
The front month NYMEX contract for HH gas (MAY21) closed at $2.72 on April 23. After the May contract the strip prices are all higher; from $2.804 for JUN21 to $3.207 for JAN22.
Oil futures regained ground on Friday, with WTI crude settling above the $62 a barrel level after upbeat economic data for the US, including PMIs and new homes sales, lifted hopes of a fast recovery in fuel demand. In Europe, flash PMIs also pointed to economic recovery, and some countries, including France, start to ease restrictions. Still, rising coronavirus infections in some parts of Asia capped gains. Pressuring prices further this week were EIA data showing a surprise US inventory build. As a result, the US benchmark finished the week almost 2% lower while Brent ended it down 1%.
Natural Gas Prices
NYMEX natural gas futures were trading around the $2.77/MMBtu level in the third week of April, a level not seen in more than a month, as forecasts for cooler weather and higher heating demand this week lent optimism to gas bulls. On top of that, a smaller than expected increase in the amount of natural gas in storage, record exports and a recent decline in production kept sentiment elevated.
The front month NYMEX contract for HH gas (MAY21) closed at $2.72 on April 23. After the May contract the strip prices are all higher; from $2.804 for JUN21 to $3.207 for JAN22.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group