Sweet 16 Update - October 27

[dan_s]

The Sweet 16 pulled back with oil prices and the overall market last week. CRZO and EOG were the only two that moved up slightly. First Call increased their price targets on four companies last week. Under the Sweet 16 you can find a pdf file that shows my Fair Value Estimate and the First Call Price Target for each company.

Whiting Petroleum (WLL) reported 3rd quarter results last week. Earning came in below my forecast, primarily due to the mark-to-market adjustments on their hedges (a non-cash item). Cash flow per share was in-line with my forecast and production was up nicely. Q4 production should be around 85,000 boepd (up from 82,615 boepd in Q3) and year-over-year production growth should be around 21%. First Call's price target is $60/share. Whiting has some of the best acreage in the Bakken and I really like what they have going in West Texas. Whiting is near the top of my "Prime Takeover Targets" list.

I am expecting all of our Bakken and Eagle Ford companies to report strong production growth in both Q3 and Q4.

Denbury Resources (DNR), Swift Energy (SFY) and Unit Corp (UNT) all look like "Screaming Buys" to me. They are all trading at less than half of my Fair Value Estimates and well below First Call's price targets. UNT is now trading below book value, which is insane for a company of this quality. UNT is lumped in with the onshore drillers but it gets more revenues from their E&P division. You should all read our profile on Unit Corp.

Denbury will close the sale of their Bakken acreage to Exxon in November. This transaction will significantly improve the balance sheet. DNR is heavily weighted to oil that sells into the Gulf Coast market at close to Brent. It has double digit production growth locked in for a decade.

Natural gas moves to the December NYMEX contract next week, that closed at $3.72/mcf on Friday. I think natural gas will become a big story in the months ahead. Most of Texas turned on the furnaces last night. We all burn natural gas to heat our homes. The big stom moving into the Northeast will consume a lot of gas.

Check under Latest News on the home page for announcements of updates to our Sweet 16 forecast models. I will get to them as fast as I can after 3rd quarter results come out.