Sweet 16 Update - May 31

[dan_s]

Most of the Sweet 16 stocks were down slightly last week, with our newest addition Solaris Energy Infrastructure (SEI) being the only one with a decent gain. As of the May 30th closing prices, the Sweet 16 is down 13.73% YTD, not including our 25% gain on Veren (VRN) that merged into Whitecap (WCP.TO).

The S&P 500 Index is now up 0.46% YTD and up 5.28% since Trump announced the Tariff War on Independence Day. FEAR of the Tariff War causing a global recession has faded, but there remains a lot of uncertainty on how and when it will end.

The U.S. Dollar Index is down 9.5% YTD, which is a HUGE decline for the greenback, which normally causes oil prices to increase. OPEC+ continues to raise production quotas, which is also a strange response to low oil prices. This continues to be a very "weird" year.

For April and May, the WTI front month NYMEX futures contracts have traded from $57.18 to $64.10, so the average oil price for the quarter is slightly below $61/bbl. My Q2 forecasts are based on $62.50/bbl. During the same period, HH natural gas as flopped around between $3.10 and $3.70, so the average ngas price so far is around $3.40/MMBtu and my Q2 forecasts are based on an average gas price of $3.25/MMBtu.

For the YTD, WTI oil is down ~21%, HH natural gas is up ~33% and Propane is up ~6%. Cash settlements on oil hedges and higher realized natural gas and NGL prices are offsetting most of the pain within the Sweet 16 due to lower oil prices. All 16 companies remain free cash flow positive.

The 15 upstream companies in the Sweet 16 all produce a lot of natural gas and NGLS. Natural gas + NGLs as a percentage of total Boepd ranges from 41.02% by Matador Resources (MTDR) to 99.2% by EQT Corp. (EQT). For each company's production split between crude oil, natural gas and NGLs see Tab 2 of the Sweet 16 Summary Excel workbook, which is updated each week. Tab 3 shows the same information for the companies in our Small-Cap Growth and High Yield Income portfolios.

All of my forecasted oil, gas and NGL prices are adjusted for the impact of each company's hedges and regional and quality differences, which for some companies is a bit of a WAG. You can see how I calculate them at the bottom of each company's forecast model.

I have no idea how the Trade War noise will ultimately impact oil, gas and NGL prices, BUT overall demand for energy will keep going up year-over-year AND the current oil price is below the "Right Price" based on the fundamentals.
> U.S. oil production will be on steady decline in 2H 2025, unless the WTI oil price rebounds soon.
> Increasing LNG exports and surging demand for electricity should push natural gas prices over $4.00 by the end of July and over $5.00 by December. The JAN26 NYMEX futures contract for HH Ngas closed at $4.80 on May 30th.

It "feels like" Phase 3 of the oil price cycle (Falling Prices) has ended or will soon. Phase 4 (Low Prices) usually does not last long before falling oil production pushes oil into Phase 1 (Rising Prices). When Phase 1 is confirmed, the Sweet 16 stock prices should move back toward their 52-week highs. The Oil Price Cycle has not stopped turning for over 50 years, and this will not be an exception to the rules of supply & demand.

Remember that the "Gassers" are in a totally different market. U.S. and Canadian natural gas prices are set by regional fundamentals. Natural Gas prices in Asia and Europe are over $12/MMBtu.

Most of my own portfolio is invested in the companies in our High Yield Income Portfolio. I like InPlay Oil (IPO.TO and IPOOF) which we profiled this morning, and Peyto Exploration & Development (PEY.TO and PEYUF) because they both have lots of exposure to rising natural gas prices.

Spartan Delta (SDE.TO) in our Small-Cap Growth Portfolio has the most exposure to natural gas. Vital Energy (VTLE) has approximately 90% of their Q2 thru Q4 2025 oil production hedged at an average price of approximately $70.75/bbl. VTLE closed on Friday at less than 0.6 X my 2025 Operating CFPS forecast of $27.50. Only in a very weird year does a company generating free cash flow trade at less than 1X operating CFPS.