Energy Prospectus

At the time of this post the NOV23 NYMEX contract for HH natural gas was trading at $3.26/MMbtu, which compares to the $2.75 that I am using for my Q4 natural gas price in all of my forecast models.

All of the Sweet 16 companies will benefit from higher natural gas and NGL prices in Q4

Below is shown the volume of natural gas and NGLs produced by each company and the percentage of their production on a Boe basis (6:1 for ngas).
The industry uses a 6 to 1 ratio because 6 mcf of natural gas has about the same energy content as 1 barrel of crude oil.

Company: Natural gas (mcfpd) / NGLs (bpd) / % of total Q4 production

Callon Petroleum (CPE): 126,000 / 21,000 / 39.6%

Comstock Resources (CRK): 1,500,000 / none / 99.9% < CRK reports ngas and NGLs on a combined basis, most of their production is dry gas.

Crescent Point (CPG): 293,400 / 40,000 / 29.7%

Earthstone Energy (ESTE): 246,000 / 37,000 / 58.9% < Merger into Permian Resources (PR) expected to close at end of October.

EQT Corp. (EQT): 5,701,000 / 62,000 / 99.6% < EQT is the largest producer of natural gas in the U.S.

Diamondback Energy (FANG): 558,000 / 94,000 / 41.3% < Viper Energy Partners (VNOM) will also get a big revenue boost from higher gas prices.

Vital Energy (VTLE): 158,400 / 25,600 / 52.0%

Magnolia Oil & Gas (MGY): 158,400 / 22,200 / 57.9% < None of MGY's production is hedged.

Matador Resources (MTDR): 342,000 / none / 39.9% < Matador reports ngas and NGLs on a combined basis.

Northern Oil & Gas (NOG): 258,000 / none / 37.4% < NOG reports ngas and NGLs on a combined basis.

Ovintiv (OVV): 1,608,000 / 81,000 / 62.5%

Permian Resources (PR): 300,000 / 36,500 / 48.5% < Merger with ESTE should close by October 31st

Range Resources (RRC): 1,548,000 / 104,600 / 98.0%

SilverBow Resources (SBOW): 245,400 / 15,100 / 70.0% < SilverBow has significant upside in Webb County if ngas stays over $3.25

SM Energy (SM): 369,000 / 25,500 / 56.5%

As you can see, our Sweet 16 Growth Portfolio should get a significant revenue boost from higher natural gas and NGL prices in Q4. In addition to the three "gassers" (CRK, EQT and RRC), SilverBow (SBOW) deserves the most attention. My current valuation of SBOW is $78/share.

Except for Hemisphere Energy (HMENF), all of the upstream companies in our Small-Cap Growth Portfolio and our High Yield Income Portfolio will get significant revenue boosts from rising natural gas prices.

I show each company's production mix at the bottom of my forecast models, which you can find on the EPG website.

I also show a table of each company's hedges at the bottom of each forecast model.

Investing in this sector requires that you know the production mix and hedging policies of each company.

Black Stone Minerals (BSM) has the most exposure to natural gas of the four minerals companies in the High Yield Income Portfolio.

For clarification, as I understand it, the % NG and NGL production is nowhere close to the % of revenues. For example, VTLE had 52% NG and NGL but since oil gets a much higher price than the r6 to 1 ratio, the % of revenues they receive from NG and NGL is somewhere below 20%

That's true. Crude Oil prices are much higher, so their oil production generates the majority of revenues for all but the three "gassers" (CRK, EQT and RRC).

For your due diligence, download my forecast models and look at the make-up of their revenues at the bottom of the Excel spreadsheets. Learning how to use the forecast models is your "homework".

My point is that if each company gets $0.50/mcfe more revenue for their Q4 ngas and NGL production (Q4 has 92 days), it is going to be a nice revenue boost.

Example: Silverbow Resources
245,000 mcfpd + 15,100 bpd of NGLs = 335,600 mcfepd
335,600 mcfepd X 92 days X $0.50 = $15,437,600 more revenue in Q4 < Significant for a company of their size.

Plus, Silverbow has HUGE P2 gas reserves in Webb County.