Energy Prospectus

September was the best month ever for the Sweet 16. The portfolio gained over 50% from Sept 1 to Oct 1. This compares to the S&P 500 Index that lost 2.7% during the same period. This indicates a SIGNIFICANT amount of rotation into the Energy Sector.

For the week ending October 1 the Sweet 16 gained 12.89%, while the S&P 500 Index lost 2.62%.

Year-to-date the Sweet 16 is up 149.37%, while the S&P 500 Index is up 16.00%. This has been a very good year for stocks in general, but I think a lot of investors move cash to the sidelines in October because the month has seen some serious corrections in the past.

Laredo Petroleum (LPI) leads the pack, up 331% YTD and is approaching my valuation of $90.00. LPI is a very High Beta stock, so it may be time to harvest this gain. However, my valuation is based on a very low multiple of operating cash flow per share, which I forecast to be $29.20 in 2021 and $39.78 in 2022. If Laredo's Q3 results and updated guidance confirm my forecast production assumptions my valuation may go as high as $130.00. Laredo has only 17 million shares outstanding, which is very low for a company of this size. I am expecting their production guidance to point to a 2021 exit rate of more than 80,000 Boepd.

CPE (up 283%), AR (up 252%) and RRC (up 244%) round out the "Final Four" to stick with my NCAA basketball comparison for the portfolio. In case you are wondering, when EPG was founded in 2001 by Kevin Hopkins, we set up the first ever EPG model portfolio during March Madness. I took over EPG 100% in 2006. Time flies when you are having fun.

The "worst" preforming stock in the portfolio is Pioneer Natural Resources (PXD), up 53.4% YTD. It has been a Wall Street favorite for years and was not grossly oversold in 2020 like most of the others. My current valuation of $249/share is likely to go up after the release Q3 results.

Overall, the Sweet 16 closed on October 1 at a 52.6% discount to my current valuation. As Goldman Sachs confirmed in their updated oil price forecast yesterday, the Wall Street Gang is still valuing upstream companies based on $60/bbl WTI and $2.50/mcf HH natural gas prices. Goldman Sachs' top three picks are PXD, DVN and FANG. To a lesser extent they rate EQT, OVV, PDCE and MGY (in our Small-Cap Growth Portfolio) as BUYs. < If you would like to read the GS report (13 pages) just send me an email and I will forward it to you: dmsteffens@comcast.net

PDC Energy (PDCE) released an operations update which was mildly disappointing sighting lower than expected well results in the Permian Basin. IMO the market (as it usually does) overreacted on Friday. I have adjusted my forecast to their new guidance and I also lowered my 2022 production estimates and all it did was lower my valuation by $2 to $80. Most of PDC's production comes from the DJ Basin in Colorado and the Wall Street Gang considers that state to have "Geopolitical Risk". Colorado gets a lot of tax revenues from the oil & gas industry, so I believe that risk is minimal.

Comstock Resources (CRK) has gained close to 50% since the beginning of September but it still trades at less than half of my current valuation of $21.00. Comstock is a pure gasser that holds some extremely valuable leasehold in the Haynesville Shale play; over 1,900 low-risk / high-return horizontal drilling locations. This company is controlled by Jerry Jones.

AR and EQT are still trading at less than book value, which IMO is "insane" considering the BIG IMPROVEMENT in natural gas and NGL prices. These two and RRC are going to harvest some very big spot market premiums this winter because the Northeast (thanks to idiot leadership) are going to be short natural gas and begging for more home heating fuels this winter.

Earthstone Energy (ESTE) and Ovintiv (OVV) are also trading at a deep discount to my valuations.

Cimarex Energy (XEC) will be officially merging into Cabot Oil & Gas (COG) next week. The combined company will be renamed and start trading on Monday, October 4 at Coterra Energy Inc. (NYSE: COG). < This large-cap "gasser" will draw a lot of Wall Street's attention. My initial valuation is $29.00. See post below.

This Company is expected to BIG dividends in 2022.

Cabot Oil & Gas and Cimarex Energy Complete Combination, Forming Coterra Energy
Fri, October 1, 2021, 8:08 AM

Newly Created Energy Company Benefits from Strong Financial Foundation and Premier, Diverse Assets

HOUSTON, Oct. 1, 2021 /PRNewswire/ -- Coterra Energy Inc. ("Coterra" or the "Company") (NYSE: COG) today announced the successful completion of the combination of Cabot Oil & Gas Corporation ("Cabot") and Cimarex Energy Co. ("Cimarex"), creating a premier, diversified energy company with a strong free cash flow profile, well positioned to deliver superior and sustainable returns to shareholders through commodity cycles. Coterra's common stock will trade on the New York Stock Exchange under the ticker symbol "CTRA" at the open of trading on October 4, 2021 and under the symbol "COG" until then.


The Coterra name reflects two companies coming together, combining teams and assets to create a stronger platform to deliver sustainably higher returns.

Dan O. Dinges, Executive Chairman of Coterra, said, "We are proud to complete our transaction and launch Coterra, which will build upon the impressive legacies and many strengths of both Cabot and Cimarex. Driven by a commitment to operating accountably, sustainably and safely, Coterra will be well positioned to increase returns to shareholders and deliver long-term value for all our stakeholders."

Thomas E. Jorden, Chief Executive Officer, President and Director of Coterra, said, "Today marks the beginning of our journey as one Coterra team. We couldn't be more excited to bring together our teams and form a new E&P company that is positioned to succeed in the next phase of the shale revolution and beyond. With tremendous flexibility between premier oil and natural gas assets and a focus on operating efficiently, driving substantial cash flows and generating capital returns through commodity cycles, Coterra is poised to deliver enhanced value to our shareholders."

With the transaction now closed, Coterra is positioned to drive enhanced shareholder value by:

Facilitating significant capital returns, with an increased base dividend, a variable dividend reflecting the Company's commitment to return 50% of quarterly free cash flow ("FCF") to shareholders and a special cash dividend of $0.50 per share post-closing.

Delivering substantial and sustained cash generation across cycles and supporting a more resilient free cash flow profile with the flexibility to leverage commodity specific cycles in allocating capital.

Leveraging a top tier asset base across over 700,000 net acres, with high-return Marcellus, Permian and Anadarko Basins inventory and a combined production base of approximately 605 MBoepd as of the second quarter of 2021.

Ensuring a strong financial profile through enhanced scale and a stronger balance sheet characterized by increased liquidity and reduced volatility, including an improved credit rating, a favorable net debt-to-EBITDAX ratio and $100 million in targeted G&A synergies.

Strengthening its commitment to ESG through industry leading practices and policies, a commitment to further improvement across critical sustainability metrics and the alignment of executive compensation with shareholder value creation and environmental sustainability.

Coterra Senior Leadership Team

As previously announced, joining Mr. Jorden as a member of Coterra's senior leadership team is Scott C. Schroeder, previously Cabot's Executive Vice President and Chief Financial Officer, who will serve as EVP and CFO of the combined business. Additional members of Coterra's senior leadership team announced today include:

Stephen P. Bell, Executive Vice President – Business Development

Francis B. Barron, Senior Vice President and General Counsel

Christopher H. Clason, Senior Vice President and Chief Human Resources Officer

Steven W. Lindeman, Senior Vice President – Production & Operations

Phil L. Stalnaker, Senior Vice President – Marcellus Business Unit

Michael D. DeShazer, Vice President of Business Units

Kevin W. Smith, Vice President and Chief Technology Officer

Coterra Board of Directors

Coterra's 10-member Board of Directors has equal representation from Cabot and Cimarex and was selected to ensure that the Company has the diverse skills, experience and perspectives along with the necessary independence and diversity to provide strong corporate governance and expert oversight of management. They include:

Dan O. Dinges, Executive Chairman (former Cabot Board member)

Thomas E. Jorden, CEO & President (former Cimarex Board member)

Lisa A. Stewart, Lead Independent Director (former Cimarex Board member)

Dorothy M. Ables, Independent Director (former Cabot Board member)

Robert S. Boswell, Independent Director (former Cabot Board member)

Amanda M. Brock, Independent Director (former Cabot Board member)

Paul N. Eckley, Independent Director (former Cimarex Board member)

Hans Helmerich, Independent Director (former Cimarex Board member)

Frances M. Vallejo, Independent Director (former Cimarex Board member)

Marcus A. Watts, Independent Director (former Cabot Board member)

For more information on Coterra's Board of Directors and senior leadership team, please visit our website at www.coterra.com.

Share Exchange

As previously announced, in accordance with the terms of the merger agreement, each eligible share of Cimarex common stock issued and outstanding immediately prior to the effective time of the transaction will be exchanged for 4.0146 shares of Cabot common stock.

Additional information regarding the exchange of Cimarex common stock for merger consideration was mailed to registered holders of Cimarex common stock.

With the completion of the transaction, as of today, Cimarex common stock will no longer be listed for trading.

Coterra Energy

Coterra is a premier, diversified energy company based in Houston, Texas. We strive to be a leading producer, delivering returns with a commitment to sustainability leadership. Learn more about us at www.coterra.com.