Sweet 16 Update - Nov 3

[dan_s]

Despite the dip on Friday, the Sweet 16 was up about 1.5% last week. Leading the way are Cimarex Energy (XEC), SM Energy (SM) and Unit Corp (UNT), which all reported strong 3rd quarter results. I was extremely pleased to see the big jump in oil production reported by both XEC and SM.

Updated Net Income & Cash Flow Forecast models for all the companies that have reported Q3 results can be found under the Sweet 16 Tab this afternoon.

As a group, the Sweet 16 is trading more than 58% below my Fair Value estimates. They are all trading well below First Call's price targets, which keep drifting higher. First Call's price target for Gulfport Energy (GPOR) moved over my target price after they released more Utica Shale well results.

Whiting Petroleum (WLL) traded lower after they released 3rd quarter results and it is hard for me to explain why. Reported earnings were down from Q2 because of a big swing in the mark-to-market of their hedges. This is a non-cash accounting adjustment that has nothing to do with cash flows. WLL is now trading at less than 4X this year's CFPS. IMO the stock should be trading at least 6X CFPS. First Call's price target is $58.94 and my Fair Value Estimate is higher. Check out the updated company profile for Whiting, which I posted under the Sweet 16 Tab yesterday.

I will be back with more on the Sweet 16 after I finish updating some forecast models.

[dan_s]

If you are believer in higher natural gas prices in 2013, you should take a hard look at Cimarex Energy (XEC).

None of their gas production is hedged. On a boe basis (6/1) about half of their current production is natural gas. Their realized gas price for Q3 was only $2.79/mcf and they still reported very strong results. If the price of natural gas stays over $3.50/mcf in 2013 (which is what I'm using in my forecast models these days), XEC is going to have strong results next year.

Take a look at my forecast model for XEC which is now posted under the Sweet 16 Tab. Just click on the Cimarex logo. You can download the Excel model and play with the commodity prices at the bottom to see how they impact earnings and cash flows.

[dan_s]

Kodiak Oil & Gas (KOG): My take on the company's conference call is that they have an outside shot at reaching their production target of 27,000 boepd. This company has a long history of over-promising then under-delivering so I give them around a 10% shot if all the wells waiting on completing get tied in by year-end. That said, KOG has generated outstanding production growth this year and that growth should continue in 2013. This one is a keeper.

[dan_s]

Swift Energy (SFY) reported a decline in production during the 3rd quarter due to hurricane Isaac related shut-ins and some difficulties getting new Eagle Ford wells completed. Those problems are behind them now and Q4 production should be up 1,600 to 2,000 boepd in Q4. More important, their oil production should be up even more. The market's reaction to their Q3 results seem to be overdone to me. First Call's target price is $32, which seems more than justified since the stock is trading well below 3X the 2012 CFPS forecast.

[dan_s]

Forecast models for all of the Sweet 16 that have reported 3rd quarter results are now available:
XEC, KOG, RRC, SM, SFY, UNT, WLL.

Except for HP, all the remaining Sweet 16 companies will report Q3 results early next year. HP is on a fiscal year that ends on September 30, so they won't anounce full-year results until 11/15.

I have also posted a summary of my Fair Value Estimates for each company comparing it to the current First Call Price Target.

These are all available to EPG Members under the Sweet 16 Tab. Just click on the company logos.