Energy Prospectus

Today was the last day of trading for the 1st quarter. The Sweet 16 finished Q1 up 12.14% YTD, compared to the S&P 500 Index which was up 10.03%. WTI crude oil flopped around during the quarter, ending the day on an uptick at over $97/bbl. The Sweet 16 is heavily weighted to oil and it will stay that way.

The portfolio drifted lower today, despite a nice move in oil prices. My guess is that fund managers wanted to lock in gains and many investors do not want to be long over a holiday weekend.

First quarter results should be very strong as oil prices averaged around $93/bbl during the quarter and natural gas made a strong move finishing over $4.00/mcf, thanks to a very cold March and bullish weekly storage reports. As I wrote in this morning's Flash Alert, the natural gas fundamentals now look much better than they did just a few weeks ago.

One of our top interns finished her report on Concho Resources (CXO) and I will finish it up this weekend. We have been tracking the company for over six months and I have been looking for an excuse to move it into the Sweet 16. Concho reported 26% production growth in 2012 and the outlook is very strong for this one. I will be taking a hard look at Energy XXI (EXXI) next Tuesday. Unless I see some improvement in their outlook, CXO may be replacing EXXI in the Sweet 16 next week.

Primarily because of the improving outlook for natural gas, EOG (which produces over 1.3 bcf per day of gas), UNT, CRZO and SM all look very attractive at their current share prices. My Fair Value Estimate for each company will get a nice boost when I adjust the natural gas price I am using in my forecast models. NGL prices should also improve with increasing gas prices.

You should all take a hard look at Unit Corp. (UNT). It may have the most to gain from an improving gas market.

I will have more to say in the next "The View From Houston" newsletter that we will send out on Tuesday morning.

I hope you all enjoy the Easter Weekend. This is my favorite holiday. I will be working Friday and Saturday, so post any comments or questions here and I will respond.

PS: We had 107 attendees at our luncheon on Wednesday and EnerJex gave a very encouraging presentation. ENRG is one of our Small-Cap Growth Portfolio stocks.

Send a copy of your change email to Schiller.

If you've looked over the forecast model for EXXI (which is available under the Sweet 16 Tab), you will see that the company should generate $1.50 to $2.00 in EPS this fiscal year (which ends June 30) and a rock solid $7.00 to $8.00 in cash flow per share. With a strong balance sheet and lots of low risk development projects, this is a very cheap stock at just $27/share. I certainly see no reason to sell it at this level.

However, the Sweet 16 is focused on growth. It now appears that Energy XXI's production will be flat year-over-year as they have reduced guidance. I want to own stocks that have double digit production and proven reserve growth locked in.

Hurricane risk is another issue that will keep investors away from EXXI.

The primary reason that I make a change to the Sweet 16 is that I find a company I like better and CXO looks VERY GOOD.

I just updated the Sweet 16 Growth Portfolio spreadsheet:
> Tab 1 is a summary of the EPS and CFPS forecasts,
> Tab 2 shows our Fair Value Estimate compared to First Call's Price Target for each company as of 3-30-2013

After I get next week's newsletter done, I will focus on updating all of the forecast models to break out 2013 by quarter. I will also increase the oil and gas prices used in the forecasts, which will raise my Fair Value Estimates.