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Sweet 16 Update - Mar 18

Posted: Sat Mar 18, 2023 10:17 am
by dan_s
See Previous Post: First I want to thank Ray for the good work of showing that all of our Sweet 16 can survive a year of lower oil and gas prices.
WTI oil may drop briefly to $60/bbl in this "Fear of Recession" selloff, but I doubt that HH natural gas prices will stay below $2.50 much longer, because the utility companies that generate the electricity for your homes will soon be back in the market bidding for physical supply against the LNG exporters.
During the week ending March 17 the Sweet 16 lost 11.29% and is now down 19.92% YTD. Six of the companies (CPE, CPG, ESTE, EQT, VTLE, SBOW) are trading below book value, which should never happen.
The S&P 500 Index actually gained 1.26% and is now up 1.84% YTD.

EOG Resources (EOG) has been added to the portfolio, replacing Ranger Oil (ROCC) that is merging into Baytex Energy (BTE).

All 16 companies reported strong 2022 results and much improved balance sheets heading into 2023. Despite the recent pullback in oil prices, they should all report good Q1 2023 results. Those with lots of their production hedged (shown at bottom of each forecast model) should report large receipts of cash settlements on their hedges and large mark-to-mark gains on their hedges. Just remember that the MTM gains and losses are non-cash items that do not impact operating or free cash flow.

I have no way of knowing if any of the companies have been or will be directly impacted by the bank failures. I'm 99% sure none of them had cash in SVB.

What's happening to the regional banks is what you call a "Black Swan Event". Maybe we should have seen this coming, but the impact on energy stocks seems to be overdone. This is a "capital intensive" business and the upstream companies do move large sums of cash through the banking system, so we will just have to wait until the individual companies comment on any exposure they may have.

My forecast models for all 16 companies have been updated for 2022 results and their guidance for 2023. The models are "macro driven"' and you can download them to Excel from the EPG website and change the oil, gas and NGL prices at the bottom to see how commodity prices impact future earnings, cash flow and stock valuations. It is a good idea to look at the impact their hedges will have on "realized prices" for each quarter.

I urge all of you to read the summary of IEA's March "Oil Market Report" which you can find at the link below.

Unless there is a MAJOR Global Recession, IEA is now forecasting that demand for oil will exceed supply later this year.

Re: Sweet 16 Update - Mar 18

Posted: Sat Mar 18, 2023 10:47 am
by dan_s
Susan and I will be traveling all next week and we have a lot to do today, so no podcast this weekend.