Sweet 16 Update - July 20
Posted: Sat Jul 20, 2013 1:16 pm
Our Sweet 16 Growth Portfolio is now up 19.7% YTD, finally outpacing the S&P 500 Index. If the West Texas Intermediate (WTI) crude oil price stays over $100/bbl through year-end, earnings and cash flows for this group will be very strong. WTI closed at $108.47 on Friday, just 5 cents below Brent.
The 15% increase in WTI over the last four weeks has gotten a lot of attention in the press, but Brent (the global benchmark) is up only a few dollars and it is well below its 52-week high. The rise in WTI is all about the bottleneck up in Cushing, OK being eliminated by new pipelines and rail transport. Since about 70% of the crude oil going into domestic refineries was already coming in at Brent pricing, we should not see a sharp increase in gasoline prices. The Midwest will see the most increase in their gasoline prices. The last thing we need is higher gasoline prices pushing the U.S. back into recession.
Analysts are now expecting WTI and Brent to trade much closer together and crude oil to stay over $100/bbl for at least the next six months due to increasing demand and unrest in the Middle East. Demand for oil will remain high until next spring.
Energy XXI (EXXI) released a very strong fiscal year-end reserves report this week and I have adjusted my forecast model and Fair Value Estimate ($49.70/share) accordingly. EXXI is heavily weighted to oil, but it was selling all of its oil at Brent anyway. The increase in WTI hasn’t helped it much. Their production is all in the Gulf of Mexico, so it has a high level of hurricane risk. That keeps many investors away since it is a risk that is all but impossible to forecast. If all goes according to my forecast, I think EXXI could be a big winner for us in the 4th quarter, after hurricane season.
Second quarter results start pouring out next week, with RRC, WLL and HP reporting first. Whiting Petroleum (WLL) should give all the Bakken companies a boost as I am expecting them to report very strong Q2 results. WLL is now up 18.2% YTD but it is still 67% below my Fair Value Estimate. RRC and HP are both approaching my Fair Value Estimates, but they are both "core holding quality" and deserve to trade at a premium.
The Bakken companies (CLR, EOG, KOG, OAS, SM and WLL) will get the most bang from the jump in WTI. If you believe WTI will stay over $100/bbl, CLR is worth a lot more than my $120/share valuation. CLR is the largest leaseholder in the Williston Basin with better than 30% annual production growth locked in for at least five years.
> Triangle Petroleum (TPLM) is a pure play on the Bakken from our Small-Cap Growth Portfolio.
> American Eagle Energy Corp. (OTC BB: AMZG) is a small-cap focused on the Bakken / Three Forks that looks very interesting to me. They reported strong 1st quarter results. American Eagle is hosting our luncheon in Houston on August 1. We will be publishing a profile on the company after we get 2nd quarter results mid-August.
Bonanza Creek Energy (BCEI) leads the Sweet 16, up 46.6% YTD. They are primarily a Niobrara oil producer, another area where oil sells close to WTI. If you are not familiar with Bonanza Creek, you should read our profile, which you can find under the Sweet 16 Tab.
A spreadsheet with my 2nd quarter earnings per share forecast for each company in the portfolio is under the Sweet 16 Tab.
We will be updating our forecast models and profiles on each S-16 company within a few days after they release Q2 results. I will announce them here and under “Latest News” on the home page.
The 15% increase in WTI over the last four weeks has gotten a lot of attention in the press, but Brent (the global benchmark) is up only a few dollars and it is well below its 52-week high. The rise in WTI is all about the bottleneck up in Cushing, OK being eliminated by new pipelines and rail transport. Since about 70% of the crude oil going into domestic refineries was already coming in at Brent pricing, we should not see a sharp increase in gasoline prices. The Midwest will see the most increase in their gasoline prices. The last thing we need is higher gasoline prices pushing the U.S. back into recession.
Analysts are now expecting WTI and Brent to trade much closer together and crude oil to stay over $100/bbl for at least the next six months due to increasing demand and unrest in the Middle East. Demand for oil will remain high until next spring.
Energy XXI (EXXI) released a very strong fiscal year-end reserves report this week and I have adjusted my forecast model and Fair Value Estimate ($49.70/share) accordingly. EXXI is heavily weighted to oil, but it was selling all of its oil at Brent anyway. The increase in WTI hasn’t helped it much. Their production is all in the Gulf of Mexico, so it has a high level of hurricane risk. That keeps many investors away since it is a risk that is all but impossible to forecast. If all goes according to my forecast, I think EXXI could be a big winner for us in the 4th quarter, after hurricane season.
Second quarter results start pouring out next week, with RRC, WLL and HP reporting first. Whiting Petroleum (WLL) should give all the Bakken companies a boost as I am expecting them to report very strong Q2 results. WLL is now up 18.2% YTD but it is still 67% below my Fair Value Estimate. RRC and HP are both approaching my Fair Value Estimates, but they are both "core holding quality" and deserve to trade at a premium.
The Bakken companies (CLR, EOG, KOG, OAS, SM and WLL) will get the most bang from the jump in WTI. If you believe WTI will stay over $100/bbl, CLR is worth a lot more than my $120/share valuation. CLR is the largest leaseholder in the Williston Basin with better than 30% annual production growth locked in for at least five years.
> Triangle Petroleum (TPLM) is a pure play on the Bakken from our Small-Cap Growth Portfolio.
> American Eagle Energy Corp. (OTC BB: AMZG) is a small-cap focused on the Bakken / Three Forks that looks very interesting to me. They reported strong 1st quarter results. American Eagle is hosting our luncheon in Houston on August 1. We will be publishing a profile on the company after we get 2nd quarter results mid-August.
Bonanza Creek Energy (BCEI) leads the Sweet 16, up 46.6% YTD. They are primarily a Niobrara oil producer, another area where oil sells close to WTI. If you are not familiar with Bonanza Creek, you should read our profile, which you can find under the Sweet 16 Tab.
A spreadsheet with my 2nd quarter earnings per share forecast for each company in the portfolio is under the Sweet 16 Tab.
We will be updating our forecast models and profiles on each S-16 company within a few days after they release Q2 results. I will announce them here and under “Latest News” on the home page.