Sweet 16 Update - August 17
Posted: Sat Aug 17, 2013 2:29 pm
Despite increasing crude oil and natural gas prices last week, most of the Sweet 16 pulled back during the week (except for GPOR, SM and UNT). Overall market weakness seems to be the only reason.
One of the things I watch carefully is how Wall Street reacts to quarterly results. Since reporting rock solid Q2 results, First Call's target prices for all of the Sweet 16, except for Rosetta Resources (ROSE), have been increased. The target price for Gulfport Energy (GPOR) is up more than $8/share in the last three months. I reduced my Fair Value Estimate for GPOR by $2.75/share to $67/share after the company lowered their production guidance. My long-term outlook for GPOR remains very high.
The Sweet 16 is heavily weighted to oil. As I discussed during my presentation at Friday's luncheon in Houston, I believe crude oil prices will remain over $100/bbl for at least the next six months. Increasing demand combined with problems in the Middle East should provide support for oil into early next year.
> Egypt is not a major oil producer, but the increasing violence in Cairo is a concern. Even a slight risk of the Suez Canal closing will send Brent oil prices much higher.
> Libya back in the news: In the latest disruption, security guards re-imposed a strike they called off over the previous weekend, forcing the closure of Libya’s two main crude oil export terminals. The two ports have a combined export capacity of around 600,000 barrels per day.
> Export problems have reduced Libya's output to just 500,000-600,000 barrels per day compared to the country's production capacity of 1.6 million bpd representing over 1.5 percent of the global oil output. Libya’s Waha Oil Company has halted its 340,000 b/d of production as tanks at the export terminal are full and strikers are keeping the terminal closed.
> Exports from Iraq are also facing difficulties. Militants on Tuesday bombed a major pipeline carrying oil from northern Iraq to Turkey, stopping exports. The bombings are coming so frequently that little oil is getting through. Iraqi exports from Ceyhan averaged 218,000 b/d in the first seven months of the year. The pipeline's capacity is of about 670,000 barrels per day, but actual exports have fallen well short of capacity due to sabotage.
> Iraq’s second problem is a round of maintenance work on southern export facilities that the IEA says is likely to curtail Iraqi exports by 500,000 b/d for four to six months starting in September. Earlier this week Iraq noted that they may delay the maintenance work due to the tight energy markets.
On August 9th the International Energy Agency (IEA) based in Paris issued a forecast that global demand for oil will increase by 1.1 million barrels per day from 2013 to 2014. They also said oil demand will be up by at least a million barrels per day each year from now until 2040. Global consumption of liquid hydrocarbon based fuels (crude oil, NGLs and biofuels) will exceed 92 million barrels per day in 2014. The U.S. will consume over 19 million barrels per day.
An updated Sweet 16 spreadsheet that shows my Fair Value Estimates compared to First Call's current price forecasts for each company in the portfolio can be found under the Sweet 16 Tab. I have now updated all of the forecast models (except for EXXI which reports Q2 results on 8/21). To see the individual forecast models, just click on a company's logo.
One of the things I watch carefully is how Wall Street reacts to quarterly results. Since reporting rock solid Q2 results, First Call's target prices for all of the Sweet 16, except for Rosetta Resources (ROSE), have been increased. The target price for Gulfport Energy (GPOR) is up more than $8/share in the last three months. I reduced my Fair Value Estimate for GPOR by $2.75/share to $67/share after the company lowered their production guidance. My long-term outlook for GPOR remains very high.
The Sweet 16 is heavily weighted to oil. As I discussed during my presentation at Friday's luncheon in Houston, I believe crude oil prices will remain over $100/bbl for at least the next six months. Increasing demand combined with problems in the Middle East should provide support for oil into early next year.
> Egypt is not a major oil producer, but the increasing violence in Cairo is a concern. Even a slight risk of the Suez Canal closing will send Brent oil prices much higher.
> Libya back in the news: In the latest disruption, security guards re-imposed a strike they called off over the previous weekend, forcing the closure of Libya’s two main crude oil export terminals. The two ports have a combined export capacity of around 600,000 barrels per day.
> Export problems have reduced Libya's output to just 500,000-600,000 barrels per day compared to the country's production capacity of 1.6 million bpd representing over 1.5 percent of the global oil output. Libya’s Waha Oil Company has halted its 340,000 b/d of production as tanks at the export terminal are full and strikers are keeping the terminal closed.
> Exports from Iraq are also facing difficulties. Militants on Tuesday bombed a major pipeline carrying oil from northern Iraq to Turkey, stopping exports. The bombings are coming so frequently that little oil is getting through. Iraqi exports from Ceyhan averaged 218,000 b/d in the first seven months of the year. The pipeline's capacity is of about 670,000 barrels per day, but actual exports have fallen well short of capacity due to sabotage.
> Iraq’s second problem is a round of maintenance work on southern export facilities that the IEA says is likely to curtail Iraqi exports by 500,000 b/d for four to six months starting in September. Earlier this week Iraq noted that they may delay the maintenance work due to the tight energy markets.
On August 9th the International Energy Agency (IEA) based in Paris issued a forecast that global demand for oil will increase by 1.1 million barrels per day from 2013 to 2014. They also said oil demand will be up by at least a million barrels per day each year from now until 2040. Global consumption of liquid hydrocarbon based fuels (crude oil, NGLs and biofuels) will exceed 92 million barrels per day in 2014. The U.S. will consume over 19 million barrels per day.
An updated Sweet 16 spreadsheet that shows my Fair Value Estimates compared to First Call's current price forecasts for each company in the portfolio can be found under the Sweet 16 Tab. I have now updated all of the forecast models (except for EXXI which reports Q2 results on 8/21). To see the individual forecast models, just click on a company's logo.