Energy Prospectus

The Sweet 16 is now up 29.3% YTD. I am expecting outstanding Q3 results across the board that should continue to push shares toward my Fair Value Estimates.

Helmerich & Payne (HP) closed at $68.99 today, which is getting close to my Fair Value Estimate. I love this company, but it may be time to harvest your profits on this one. It is up over 47% since being added to the Sweet 16 less than a year ago.

I will have a lot more on the Sweet 16 tomorrow. Saturday is a work day for me. I have to get my presentation for the SMU Energy Club finished.

I will be speaking at SMU from 5-6 PM on Wednesday, September 18 at the Cox Executive Center, room 100. There are some seats available for EPG members. Send me an e-mail if you would like to attend. (dmsteffens@comcast.net). My presentation will be on the current situations in the Middle East and how that unrest will keep crude oil prices elevated. I will also discuss my Top Picks in several of the large U.S. Shale Plays.

If you log onto the website you can hear an audio presentation while you view my slides of my current views on each of the Sweet 16 companies. YOU MUST LOG ON TO DOWNLOAD IT. It is the "Live Chat with Dan" dated 8-31-2013 on the right side of the home page. My views on each company have not changed.

Energy XXI (EXXI) is the only Sweet 16 Growth Portfolio company whose share price is down (15.1%) year-to-date. It is less than 1% below the price it was when I added it to the S-16 back on 10-24-2011. I decided to take a hard look at my forecast model and valuation to see if I am missing something here. I have been tracking EXXI for over three years, so I do have a fairly high level of confidence in my forecast model.

Energy XXI (EXXI) has a June fiscal year-end. Therefore, their June 30th 3rd party reserves report must meet SEC guidelines. It was prepared by one of the most respected firms in Houston.

"Netherland Sewell & Associates, Inc. (NSAI), independent oil and gas reserves consultants, audited the year-end reserves estimates. All of the company's proved reserves are in the Gulf of Mexico or U.S. Gulf Coast, 61 percent are proved developed, 75 percent are liquids (of which 95 percent is crude oil and condensate), and 25 percent are natural gas."

Energy XXI reported a 50% year-over-year increase in proved reserves and the stock barely moved!

The PV10 of just their 178.5 million BOE of proved reserves (based on 6/30 oil & gas prices which are lower than today's prices) is $6.15 Billion. Subtracting their total debt of $2.17 Billion gives us a NAV of $3.98 billion or $46.28/share. That is just for their proven reserves!

Netherland Sewell says EXXI's "Probable" and "Possible" reserves have a PV10 of $4.8 Billion. EXXI's drilling program is going to convert a lot of the 2P reserves into Proven this year.

My Fair Value Estimate for EXXI is $49.50/share (you can find the actual calculation on the EXXI forecast model that can be found under the Sweet 16 Tab). First Call's price target is currently $37.27/share.

The company's fiscal first quarter ends Sept. 30. Based on my forecast model they should beat the current First Call EPS forecast of $0.54.

The company has a very strong balance sheet and they are generating cash flow from operations in excess of their capital budget for FYE 6-30-2014.

I still believe this stock has a lot of upside for us. Investors may be waiting until after hurricane season, since all of their production comes from an area exposed to central GOM hurricanes.

The rest of the Sweet 16 are doing great this year. As a group they are still 33.2% below my Fair Value Estimate ("FVE").

3 stocks are now within 10% of my FVE: GPOR, HP and CXO. HP is the only one I might recommend selling at this point.

In addition to EXXI, the 4 stocks that appear to me to have the most upside for us are: DNR, OAS, SM, and WLL. As I posted here before, SM had the most impressive Q2 results. You should all read our profile on that one.

DNR has an issue in their Delhi Field, but they have moved quickly and should report that clean-up is complete and production at Delhi is ramping back up. For DNR this is a relatively minor problem. For Evolution Petroleum (EPM), one of our Small-Cap Growth Portfolio stocks, it is a HUGE issue. EPM's reversionary WI in Delhi should reach "payout" by year-end.

GPOR lowered production guidance this week, but it is not reflective of any long-term issues. The midstream companies in the Utica Shale are just having some right-of-way issues. Apparently, dealing with surface owners in eastern Ohio is not as easy as it is in West Texas!

KOG, OAS and WLL are the most likely takeover targets in the Bakken.

Unit Corp. (UNT) is a safe bet and it should get a lot of attention if there is any increase in natural gas prices this winter. Others that can give you exposure to Ngas are XEC, EOG, RRC and SM.

My Sweet 16 Growth Portfolio spreadsheet has been posted to the website. Just log on and click on the Sweet 16 Tab.

Tab 1 of the spreadsheet is a summary of the EPS and CFPS forecasts for each company broken out by quarter.
Tab 2 shows my Fair Value Estimate compared to First Call's Price Target for each company as of 9-14-2013.

It is an Excel spreadsheet that you can download.

Detailed forecast models for each of the Sweet 16 are one more click away. Just click on the company's logo. You can see how I calculate Fair Value at the bottom of each forecast model.