Sweet 16 Update - July 19

[dan_s]

During the week ending July 18 the Sweet 16 lost 3.20% and the portfolio is down 8.42% YTD, not including dividends and the large gain on Veren Energy that we harvest in May when it merged into Whitecap Resources (WCP.TO), which has been added to our High Yield Income Portfolio.

The S&P 500 Index gained 0.55% during the week and is now up 7.06% YTD and up 11.5% since Trump started the Tariff War. The Tariff War has not caused the spike in inflation that was predicted by the experts in the Democrat Party, which all seem to suffer from TDS.

The uncertainty of where oil prices are heading remains a FEAR that will be a headwind for the Sweet 16. By now most analysts understand that OPEC+ is not going to increase physical supply as much as the quotas have been increased.
> WTI oil price is down 14.42% year-over-year as of July 18
> HH natural gas price is up 67.66% year-over-year as of July 18
All of the Sweet 16 companies produce a combination of crude oil, NGLs and natural gas, which I show on tab 2 of the Sweet 16 Excel book under rows W to Z. I update the summary spreadsheets for all three model portfolios each weekend.
For most of the Sweet 16, increased realized natural gas prices will offset their lower realized crude oil prices.

The Sweet 16 companies start announcing Q2 financial results and fresh guidance next week. On July 22 after the markets close EQT, MTDR and RRC are expected to report Q2 results.

The following week Q2 results and updated guidance will be released on July 29 by OVV, July 30 by AR and MGY, July 31 by CIVI and CTRA.

I will be updating my forecast/valuation models for each company as soon as I can after they release Q2 results. By the end of July 3I will be up to my neck in fresh information. By August 8, I will be under water.

[dan_s]

As of July 18:

Sweet 16 trading below book value: CIVI, CRGY, FANG, PR, SM

The Sweet 16 is trading at an average of 3.84 X annualized operating cash flow per share. For companies of this quality, should be trading at or above 6X operating CFPS unless they are having trouble servicing their debt. CIVI and CRGY to pay down some debt, but they have no serious near-term debt related issues.
Sweet 16 trading below 3X CFPS: CIVI at 1.00X, CRGY at 1.37X, MTDR at 2.60X, NOG at 1.85X, OVV at 2.50X, PR at 2.87X, SM at 1.42X

The Sweet 16 is trading at an average PE ratio of 11.28
Sweet 16 trading at PE ratios under 6: CIVI at 3.96, NOG at 4.94, SM at 3.58

The Sweet 16 trading at less than 50% of my current valuation: CIVI, CRGY, SM

Based on all of the variable and financial measures, SM Energy (SM) does look like the best buy to me.

Sweet 16 in Harry's (the "Petroleum Economist") Top 25 out of the 84 companies in his database:

SM at #4 < Harry and I are in agreement that SM is a "Strong Buy" at the current share price.

RRC at #12 < Top Large-Cap Gasser with some extremely valuable leasehold that is HBP in Appalachia (Marcellus & Utica Shale gas).

EOG at #14 < If you are a long-term investor, EOG should be in your portfolio. It has a lot of high-quality "Running Room".

FANG at #16 < There is NO REASON for FANG to be trading below book value.

MTDR at #19 < Will report outstanding well results in the Delaware Basin. If MTDR and PR merged it would create a "Power House" in the Delaware Basin.

OVV at #21 < 66% of Ovintiv's 2025 production is natural gas and NGLs.

DVN at #22 < 55% discount to my current valuation.

Despite low crude oil prices, I do expect all of the Sweet 16 to report that they remained free cash flow positive in Q2. Their realized crude oil prices should be close to my forecasts and their realized natural gas prices should be above my forecasts.