Sweet 16 Update - May 20

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dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Sweet 16 Update - May 20

Post by dan_s »

Last week was a good week for stocks in general and a very good week for our "gassers" as HH ngas futures are getting higher bids. My take is that the utilities that burn natural gas for power generation are now back in the futures market. Only time will tell if natural gas prices continue to climb, but the NYMEX strip prices for 2024 are now firmly over $3.00/MMBtu.
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During the week ending May 19 the Sweet 16 gained 3.45%, but it is still down 11.28% YTD, despite all 16 companies reporting Q1 profits. Most of them beat my Q1 forecasts.
The S&P 500 Index gained 1.77% during the week and is now up 9.18% YTD.

If the idiots in Washington can finally resolve the debt ceiling issue and the Fed just stops raising interest rates the equity market should move higher. What disturbs me the most about our elected officials is that they always wait until the last minute to resolve the important issues of running the country. They seem more focused on keeping voters worked up over racial issues or keeping "the sheep" afraid of something (recession, inflation, global warming, MAGA Republicans, etc.). We really need to elect smarter people. Who thinks it is smart to run a country without a budget that makes sense or have a national energy policy based on fear?

Monthly reports from OPEC and the IEA confirmed what we already knew; demand for oil-based products will exceed supply starting in June. Plus, U.S. gasoline inventories are already 6% below normal and distillate inventories are 16% below the 5-year average for this time of year. BTW "this time of year" is when demand for transportation fuels ramps up. In their weekly report, EIA reported a slight decline in U.S. oil production.

From IEA's monthly Oil Market Report dated 5-16-2023: "Oil prices were pressured lower by muted industrial activity and higher interest rates, which, combined have led to recessionary scenarios gaining traction and worries of a downward shift in oil demand growth. The current market pessimism, however, stands in stark contrast to the tighter market balances we anticipate in the second half of the year, when demand is expected to eclipse supply by almost 2 million barrels per day." < I do not see where an additional 2 million bpd will come from.

Last week I focused on getting my forecast models for the companies in our other two model portfolios up-to-date. I will spend more time on the Sweet 16 next week.

All of the Sweet 16 reported profitable results in Q1 and I expect that trend to continue. Antero Resources (AR) is the only Sweet 16 company that I forecast might report a small Q2 loss, but if natural gas prices do stay over $2.50 they should report another profitable quarter and the long-term outlook for AR and all of our gassers is very bullish.

It is surprising to me that two of our large-cap gassers are currently leading the pack. Range Resources (RRC) is up 17.23% YTD and EQT Corp. (EQT) is up 7.09% YTD. EQT now has a good chance of reporting higher earnings per share in 2023 than it did in 2022, thanks to a very strong hedge book. EQT is still hoping to close the Tug Hill and XcL acquisitions this year that will push their daily production over 6.1 Bcfe per day.

We will be publishing an updated profile on EQT on Monday morning.

SilverBow Resources (SBOW) trades at the deepest discount to my valuation of $78.00. SBOW closed at $24.38 on Friday.
On May 5th Neal Dingmann, a 5-Star rated analyst with Truist Financial, rated SBOW a BUY with a $44 price target. The Company reported strong Q1 results of $4.18 earnings per share and based on my forecast they should generate earnings of over $11.00 per share this year and operating cash flow of over $20.00 per share.

SilverBow has moved both of its operated drilling rigs to areas that are more oil prone. They've told me that they expect to double their daily oil production rate from Q4 2022 to Q4 2023. The Company has a lot of "running room" in South Texas and they have the flexibility to move their drilling program quickly to focus on oil or gas. If natural gas moves over $3.00, I expect them to complete two more high-rate gas wells that are now sitting in their DUC inventory.

Earthstone Energy (ESTE) will be hosting our next Houston luncheon on June 14th. Our luncheon is just one stop on a big promotional tour by the Company to draw more "love" from the Wall Street Gang. Per TipRanks: In the last 3 months, only 3 ranked analysts set 12-month price targets for ESTE. The average price target among the analysts is $21.50 per share, which compares to my current valuation of $32.00. Neal Dingmann rates ESTE a BUY with a price target of $30.00. With production now over 104,000 Boepd, this Company deserves a lot more coverage.

Crescent Point Energy Corp. (TSX and NYSE: CPG) advises that it has shut-in its Kaybob Duvernay production due to the ongoing Alberta wildfires. A portion of this production was recently reactivated in the prior week, however Crescent Point is temporarily shutting back-in the remainder of its 45,000 boe/d of production in the area as a precautionary measure due to changing wildfire conditions. No damage has been reported to the Company's assets. < The fires in Canada have also impacted the production of InPlay Oil (IPOOF) and ROK Resources (PTRDF).

The fires are not expected to cause serious damage to wells or production facilities. The shut-ins are primarily to protect the workers.

My next newsletter will be published on or before May 30th.
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34465
Joined: Fri Apr 23, 2010 8:22 am

Re: Sweet 16 Update - May 20

Post by dan_s »

News Flash from TipRanks: After the markets closed on May 19th EQT Corporation price target raised to $52 from $48 at Mizuho Securities by Vincent Lovaglio, which is a 5-Star rated energy sector analysts by TipRanks.

This may have something to do with the Tug Hill & Xcl Acquisitions, which are now expected to close in Q4 2023, adding production of 800 MMcfepd of production. For details see slide 15 of EQT's most recent presentation.

My current valuation of EQT is $47.50
Dan Steffens
Energy Prospectus Group
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