Sweet 16 Update - April 13

[dan_s]

During the week ending April 12 the Sweet 16 lost 1.38% (primarily due to the overall market selloff on Friday) and it is now up 17.96% YTD.
During the same week the S&P 500 Index lost 1.69% and is now up 7.10% YTD.

Last week EIA, OPEC and IEA reports show a tight global oil market that I expect to get much tighter this summer. Since WTI spiked to $87.41 on April 5, it has pulled back 5 times and then bounced off $85.00 each time it did. $85 is a good support level for WTI and Brent seems to have a support level at $90.00. Brent has more exposure to the supply risk in the Middle East.

U.S. and OECD petroleum inventories remain below 5-year averages and we are just a few weeks into the highest demand period of the year for transportation fuels.

I officially added APA Corp. (APA) to the Sweet 16 on April 8. It replaces Range Resources (RRC), a gasser that moved quite a bit higher than my valuation. APA closed the merger with Callon Petroleum (CPE) on April 1st. APA's engineers have already had a positive impact on Callon's well results.
I think APA has ~50% upside for us, but it will take strong Q2 results for it to get the attention it deserves.

Market forces are working to rebalance the U.S. natural gas market, but it will take most of the year before gas in storage gets close to the 5-year average. If Venture Global's big LNG export facility in Plaquemines, Louisiana comes online in Q3 that additional demand should push HH ngas over $2.25 and with a little help from the weather we should see U.S. ngas back over $3.00 by December.

Diamondback Energy (FANG) gained $2.02 during the week, which pushed it back into first place, up 33.05% YTD.
Others in the Top Four are:
> SM Energy (SM) up 30.81% YTD < Moved into our "Elite Eight", replacing RRC
> Permian Resources (PR) up 30.37% YTD
> Crescent Point (CPG) up 26.55% YTD

Vital Energy (VTLE) is up 24.01% YTD and it is finally drawing the attention it deserves. At $56.41 it still trades at an 80.8% discount to my current valuation of $102.00. Vital reported a 12,000 Boepd increase in production from Q3 to Q4 2023 and I expect them to report more than a 4,500 Boepd Q over Q production increase when they announce Q1 2024 results early in May.

Don't let SilverBow's (SBOW) proxy fight with its largest shareholder distract from the fact that it is going to report a big Q over Q production increase for the 1st quarter. It is the first full quarter since they closed the Chesapeake South Texas Acquisition on November 30th. The Company is free cash flow positive and it now has a lot of high-quality Running Room in South Texas. SilverBow's current share price ($33.07) is less than 1.4X my 2024 operating cash flow per share forecast of $24.19. TipRanks' CFPS forecasts are $25.38 for 2024 and $27.15 for 2025.
If SilverBow's Q1 results confirm my forecast model assumptions, my valuation will be increased.

Companies that will release Q1 results in April:
> April 23: EQT and MTDR
> April 28: SM (date not confirmed)
> April 30: FANG and NOG

Completion of the Trans Mountain Pipeline has already lowered the differentials in Western Canada, which helps Baytex Energy (BTE), CPG and the other Canadian oil producers (ROKRF, ZPTAF, HMENF and IPOOF) in other two model portfolios. Doug Bartole, CEO of InPlay Oil (IPOOF) will be speaking at our luncheon in Houston April 23.

[Fraser921]

I like APA, don't own it ,but the price hasn't rallied like the others
The Canadians are looking good and will surprise to the upside

[dan_s]

APA's Q1 results and detailed guidance for 2024 that includes the impact of the Callon merger should draw more attention to this stock.

After big mergers it often takes a few months for energy sector analysts to gain confidence that the deal is accretive. IMO APA got Callon at a very good price and rising oil prices makes it an even better deal.