Energy Prospectus

Each month I need to decide what commodity prices to use in my forecast/valuation models.
So, starting today all stock valuations will be based on the following:

2022 WTI Oil Prices:
Q1 Actual: $94.85
Q2 Actual: $108.41
Q3 Actual: $91.97
Q4 Estimate : $82.00

2023 average of $85.00/bbl < Cases can be made for oil averaging as low as $70/bbl if we have a significant global recession and the war in Ukraine is resolved early in the year or as high as $120/bbl if we have a mild recession and/or sanctions against Russia take a couple million bpd of supply off the market. IMO, soon after Biden quits draining the SPR, WTI will drift higher. Heating oil shortages will draw a lot of attention in Q1. Raymond James' official forecast for 2023 is $100 with $90 in Q1 drifting up to $110 by Q4.

2022 Henry Hub Natural Gas Prices:
Q1 Actual: $4.48
Q2 Actual: $7.17
Q3 Actual: $7.80
Q4 Estimate: $6.50

2023 average of $6.00: < Raymond James' forecast for 2023 is $7.00. Your guess is as good as mine and weather in Q1 will likely be the primary reason for the average price during the year. Weather is very bullish for the remainder of December and just a normal winter in Q1 should drain storage well below the 5-year average by the end of March. I believe a second major cold wave in January (like what we are going to see next week) will cause HH gas to spike over $10.00. Natural gas prices are "regional" and we are going to see double-digit gas prices in the West and Northeast next week. Several of our gassers can move gas to take advantage of high spot market prices.

NGL prices used in the models are my best guess because each company has a unique mix of NGLs.
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The prices above will only lower my stock valuations by 5% to 10% from what the valuations are in my November newsletter. All of the companies in our model portfolio will still be free cash flow positive these prices.

You should also lower cash flow multiple, imho

Stuff is trading at 3 x or lower, I don't see a paradigm shift happening

I use different valuation multiples for each company which I think are appropriate. The multiples are primarily based on balance sheet strength, running room and quality of the management team. For example, EOG Resources (EOG), the largest company with incredible "running room" deserves to trade at a much higher multiple (8X) than Laredo Petroleum (LPI) that I think deserves to trade at just 2.5 X operating cash flow. Laredo still needs to convince the Wall Street Gang that it can steady grow production.

If I just used 3X operating CFPS to value each company, it would look like I was telling members to short EOG and load up on LPI. That would not be a wise move.

The models are super easy to adjust for any multiples or commodity prices you believe are more appropriate. Just download one to Excel and change the model assumptions. The models are all macro driven, so they update automatically.