During the week ending February 23 the Sweet 16 gained 1.58% and it is now up 0.77% YTD, despite a pullback on Friday.
During the week the S&P 500 Index gained 1.74% and is now up 6.38%. A hand full of tech stocks continue to carry the overall market.
I will focus on the Sweet 16 during this weekend's podcast.
Nine of the Sweet 16 companies (FANG, EOG, EQT, MGY, MTDR, NOG, RRC, SM, VTLE) have released Q4 2023 results and provided updated guidance for 2024. They all reported solid profits and strong operating cash flow at or above my forecasts. I have updated all nine of the forecast/valuation models, which you can find on the EPG website. After you log on, just click on the "Sweet 16" tab.
I have lowered the natural gas prices being used in all of my updated forecast models. The WTI oil price is above my forecast for the quarter so far.
The natural gas price you see reported each day is the front month NYMEX contract for Henry Hub natural gas, which is currently the MAR24 contract. It closed at $1.582/MMBtu on Friday. The DEC24 contract closed at $3.358/MMBtu on Friday. There is a surplus of natural gas in U.S. storage today, but market forces are at work that will balance the U.S. gas market this summer. Over the next twelve months, ~5 Bcfpd of additional export capacity for U.S. natural gas will come online that I believe will push HH gas prices back over $3.00 in by year-end.
Diamondback Energy (FANG) leads the pack, up 13.72%, but Permian Resources (PR) is making a run; up 10.66%. Both companies are pure plays on the Permian Basin. PR reports Q4 results on February 27th and lots of the Wall Street Gang will be on their conference call. PR closed the merger with Earthstone Energy on November 1, 2023, and next week PR will provide updated guidance for 2024 that I believe will justify lots of analysts' upgrades.
Matador Resources (MTDR) (up 6.79% YTD) once again beat my forecast, primarily because they consistently "Under-Promise and Over-Deliver" on production guidance. I expect it to be one of the top gainers this year. It is a pure play on the Permian Basin that IMO is a prime takeover target.
SM Energy (SM) (up 6.97% YTD) has made significant improvements to their balance sheet and it definitely deserves to trade at more than 3X operating cash flow per share. SM continues to report strong well results.
This could be the year that Vital Energy (VTLE) gets the multiple expansion that it deserves. The Company reported 2023 Net Income per fully diluted share of $33.44. That is incredible for a stock that closed at $46.61 on Friday. My current valuation is $104/share and I think my forecast model assumptions are probably too conservative. Vital is a pure play on the Permian Basin with current production of ~117,500 Boepd (~48% crude oil) and the mid-point of their production guidance is for 23% YOY production growth in 2024. VTLE is a Screaming Takeover Target.
EOG Resources (EOG) is down 13.63% YTD, which makes no sense. Yes, it is a bit too "gassy" and it does trade close to 6X operating cash flow per share. But, EOG has a pristine balance sheet, a massive amount of high-quality "Running Room" and it pays a nice dividend. This stock should be a Core Holding for any Growth & Income Portfolio.
We will be publishing updated profiles on Range Resources (RRC) and SM Energy (SM) on Monday.
This is the point in the quarter where new information is coming at me like water out of a fire hose. It takes me 3 to 4 hours to update each company's forecast/valuation model after I receive their 10K, year-end reserves report and updated guidance. The Sweet 16 is my top priority, but I try to post comments on the our other portfolio companies as soon as I can.
The seven S-16 that have yet to report Q4 results are all expected to report them this coming week.
Our three MBAs (Nataly, Cas and Steven) are updating the profiles as soon as they can. I review them carefully before they are published. Good work takes time, so be patient.
Sweet 16 Update - Feb 24
Sweet 16 Update - Feb 24
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Sweet 16 Update - Feb 24 on VTLE
Past result are not indicative of future results.
On Vital you wrote " The Company reported 2023 Net Income per fully diluted share of $33.44."
In q 4 they reported Net income of 9.44. 7.68 of that is the accounting treatment on their hedges. So excluding that, they did 1.76 per share in q4. And if you annualized 1.76 x 4 you get 7.04.
I thought we are supposed to ignore reported hedge impacts or should we ignore them when they are negative and include them when they are positive?
To their credit they hedged their production when they made their major purchase to entrench themselves. The stock is down from a high of 62.87, maybe they can get half of the decline back.
I owned it and dumped on the self serving deal coupled with weaker oil prices.
If Saudi floods the market, crude wont go anywhere. How long will they be patient?
On Vital you wrote " The Company reported 2023 Net Income per fully diluted share of $33.44."
In q 4 they reported Net income of 9.44. 7.68 of that is the accounting treatment on their hedges. So excluding that, they did 1.76 per share in q4. And if you annualized 1.76 x 4 you get 7.04.
I thought we are supposed to ignore reported hedge impacts or should we ignore them when they are negative and include them when they are positive?
To their credit they hedged their production when they made their major purchase to entrench themselves. The stock is down from a high of 62.87, maybe they can get half of the decline back.
I owned it and dumped on the self serving deal coupled with weaker oil prices.
If Saudi floods the market, crude wont go anywhere. How long will they be patient?
Re: Sweet 16 Update - Feb 24
For Vital just focus on Adjusted Operating Cash Flow, which is on row 52 of my forecast model. Adjusted Operating Cash Flow does not include the non-cash mark-to-market gain on their hedges or deferred income taxes.
2022 actual = $800.5 million, $47.75/share
2023 actual = $884.4 million, $43.67/share
My primary point on Vital is that profitable upstream companies that are also generating free cash flow and double digit production growth should not be trading for 1X operating cash flow.
2022 actual = $800.5 million, $47.75/share
2023 actual = $884.4 million, $43.67/share
My primary point on Vital is that profitable upstream companies that are also generating free cash flow and double digit production growth should not be trading for 1X operating cash flow.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Sweet 16 Update - Feb 24
I agree, I like their oily exposure and I also like they are in The Permian and could be next takeover target. If we can get crude It looks a lot better with crude over 80 vs 70. Good torque to the upside.
Re: Sweet 16 Update - Feb 24
Frasier, what is your theory to support this idea: "If Saudi floods the market, crude wont go anywhere. How long will they be patient?"
The Saudis and Russians tried to do this to take out the shale producers about 2 years ago and failed miserably. The shale producers used the event to become more efficient.
Fact: The Saudis have a social welfare problem, just about everyone pretends to works for the government, their breakeven point for Brent is about $80 per barrel. They did cut some spending and raised taxes, but they cannot afford cheap oil. Add to that, this tidbit:
Saudi Arabia has started borrowing to fund megaprojects including Neom, The Wall Street Journal reported.
The kingdom is spending vast amounts of money to diversify its economy.
Some Saudi projects could be scaled back or delayed due to funding issues, one commentator said.
https://www.businessinsider.com/saudi-arabia-borrowing-help-fund-megaprojects-oil-prices-report-2024-2
The Saudis and Russians tried to do this to take out the shale producers about 2 years ago and failed miserably. The shale producers used the event to become more efficient.
Fact: The Saudis have a social welfare problem, just about everyone pretends to works for the government, their breakeven point for Brent is about $80 per barrel. They did cut some spending and raised taxes, but they cannot afford cheap oil. Add to that, this tidbit:
Saudi Arabia has started borrowing to fund megaprojects including Neom, The Wall Street Journal reported.
The kingdom is spending vast amounts of money to diversify its economy.
Some Saudi projects could be scaled back or delayed due to funding issues, one commentator said.
https://www.businessinsider.com/saudi-arabia-borrowing-help-fund-megaprojects-oil-prices-report-2024-2
Re: Sweet 16 Update - Feb 24
Saudi Arabia knows that they have massive oil reserves, but they know they are not infinite. Every oilfield ever discovered peaks at some point and goes on decline. Most of the large oilfields in Saudi Arabia are already on secondary waterfloods, which means they have peaked.
They are wise to us the oil wealth they have now to diversify their economy as soon as possible. In 50 years, they won't have much oil revenue.
They are wise to us the oil wealth they have now to diversify their economy as soon as possible. In 50 years, they won't have much oil revenue.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Sweet 16 Update - Feb 24
In the recent G& R piece highlighted this weekend, Adam raises the prospect that the recent Aramco cuts and otherwise Saudi restraint may actually be masking that their fields have/or are nearing their rollover point. The G & r piece is definitely worth reading.