Energy Prospectus

The Sweet 16 gained 29.72% during the week ending August 27. Yes, these are "High Beta" stocks.
The portfolio is up 89.09% YTD, but is still trading 85.19% below my current valuations and at a very low multiple of just 3.2 X operating cash flow per share.

The S&P 500 Index gained 1.81% for the week and is now up 20.06% YTD. Stocks go up in periods of inflation and low interest rates.

During the week I updated the valuations of CPE, XEC, EOG, FANG, LPI and TALO.

We will be sending out an updated profile on Cimarex Energy (XEC) on Saturday morning. It's merger with Cabot Oil & Gas (COG) is expected to close by the end of September. My updated valuation of $109.00 assumes the merger will close. XEC is merging into COG and the "NewCo" will be heavily weighted to natural gas. It will be joining AR, CRK, EQT and RRC as the "gassers" in the portfolio.

Talos Energy (TALO) will shut-in some production because of Hurricane Ida, which could be a major hurricane when it hits Louisiana/Mississippi on Sunday. I've lived thru 100+ winds and it is a frightening experience. The good news is that Ida is moving quickly, so flooding should not be a major problem.

All of the Sweet 16 profiles and forecast/valuation models are up-to-date except for Earthstone Energy (ESTE), which I promise to update next week.

My Top Picks are Comstock Resources (CRK), which is trading 205% below my current valuation and Ovintiv (OVV).

The gassers (AR, CRK, EQT, RRC and XEC) have a lot of upside since natural gas prices are now firmly over $4.00. EIA announced a bullish storage report on Thursday and they should announce another bullish storage report on September 2. The US is going to begin the winter heating season with low storage levels of both natural gas and propane. We could see $5.00 natural gas and $50/bbl propane soon.

I will record my podcast Saturday morning and then begin working on the August newsletter.

In September we will publish updated profiles on all of the Small-Cap Growth Portfolio companies.

Our next webinar, hosted by World Copper, will be September 8 at 11AM CT.

The Sweet 16 summary spreadsheet has been posted to the EPG home page. I contains a lot of information including my valuation and First Call's price target for each company. The individual company forecast/valuation models can be found under the Sweet 16 tab.

WTI crude futures jumped 10.6% to $68.74 a barrel in the fourth week of August, the highest close since August 12th and the biggest weekly gain since June of 2020 as energy companies in the US Gulf of Mexico started shutting production ahead of Hurricane Ida which is expected to hit the coast early next week. Meantime, investors remained confident that fuel demand would recover after China managed to curb its recent coronavirus outbreak and Pfizer-BioNTech got full approval for the covid-19 vaccine from the FDA. However, fears over rising cases of the Delta strain persist as some countries in the Asia-Pacific region including Australia, Japan, and New Zealand imposed fresh restrictions to battle new outbreaks.

Brent crude futures rose 2.3% to settle at $72.7 a barrel on Friday, the highest since August 2nd and widening a weekly gain to 11.5% which is the most since June 2020. Oil producers including BHP and BP began shutting production in the Gulf of Mexico ahead of storm Ida while optimism about fuel demand recovery holds strong.

US natural gas futures soared to above $4.3 per million British thermal units, the highest since December 2018 on stronger demand and as the Energy Information Administration reported a much smaller than expected storage build last week. The EIA said utilities added just 29 billion cubic feet of gas into storage during the week ended August 20th, well below market forecasts for a 40-bcf build. The demand is likely to remain strong as hot weather is expected to stay until early September. Meanwhile, natural gas prices in Europe surged to above $15 per mmBtu as Europe is facing a shortage. Russia, Europe’s biggest gas supplier, has declined to book big additional flows through pipelines in Ukraine ahead of the completion of the controversial Nord Stream 2 pipeline to Germany.

The MT. BELVIEU (OPIS) SWAP PRICE (SEP21) for propane sits at $1.14/gallon or $47.88/bbl.

29 % ...that is sweet!

We are still a long way from the 52-week highs for the Sweet 16 and I think they will all set new 52-week highs in the next six months if we can get past all the "noise" and other BS coming from Washington. We are one cold week in December from seeing the highest natural gas prices we've seen in over ten years.

"Antero Resources, for example, which is the fourth-largest natural gas producer in the U.S., repaid debt worth nearly $600 million in the first half of 2021 thanks to strong cash flows. Given the rise in natural gas prices, the company could easily repay another $400 million and bring down its total target debt to $2 billion this year, ahead of plans. Antero already projects significant free cash flow (more than $3.5 billion) through 2025, but that was before the ongoing surge in natural gas prices. If they sustain momentum, the company could end up with even higher free cash flows."

Read more: https://www.fool.com/investing/2021/08/ ... gn=article