Sweet 16 Update - February 1

[dan_s]

The Sweet 16 were all green on Friday. The portfolio is now up 9.46% YTD, compared to the S&P 500 Index that finished the week at a new five year high of 1513.2, up 6.10% YTD. The Sweet 16 and the entire energy sector has trailed the S&P 500 for the last two years, so we have some catching up to do.

Crude oil prices continue to show strength on the back of improving global economic conditions. This week The Economist issued a detailed report on the global oil markets with their forecast that crude oil demand will be up 1.5% in 2013 and another 1.8% in 2014.

North American natural gas prices are not looking good. The weather forecast has turned bearish. My hope is that an end of heating NG storage level of 2,200 bcf will be enough to support Henry Hub gas prices of $3.00/mmbtu. Stay heavily weighted to oil my friends, we probably have another year of low gas prices.

Energy XXI (EXXI) had a somewhat disappointing fiscal 2nd quarter earnings report but I do think the market over-reacted a bit. They do have a lot of potential in their horizontal development program. The company has strong cash flows and more than enough liquidity to fund their capital program that will grow both production and proven reserves. I have updated my forecast model and we will publish an updated company profile with a revised Fair Value Estimate next week.

Helmerich & Payne (HP) reported very strong fiscal 1st quarter results. HP is the premier onshore drilling company in the world. They continue to gain market share. Since I believe the active rig count will go up by 100+ rigs over the next six months, HP's Fair Value Estimate is going up.

Oasis Petroleum (OAS) is an incredible growth story! It is up 29% since I added it to the Sweet 16 on 1-1-2012 and I think it has a lot more upside for us. Read today's press release and you will see why. They have a first class leadership team and outstanding operations. [Take a look at our recent profile on Triangle Petroleum (TPLM). I think it could be another Bakken success story just like OAS with production about to go up sharply.]

I just updated my forecast model for Unit Corp. (UNT) which you can find on the website. It looks extremely good to me.

Keep an on Gulfport Energy (GPOR). I am very eager to see their next operations update on the Utica Shale.

The next Sweet 16 member to report 4th quarter earnings is EOG Resources (EOG). The have the largest stake in the Eagle Ford, so their progress will tell us a lot about the potential of CRZO, ROSE, SM and SFY. They all have big bets in the Eagle Ford.