Sweet 16 Update - April 24
Posted: Sat Apr 24, 2021 9:57 am
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.
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.