Sweet 16 Update - January 11
Posted: Sat Jan 11, 2014 4:47 pm
I have updated the Sweet 16 Growth Portfolio spreadsheet:
> Tab 1 is a summary of the EPS and CFPS forecasts,
> Tab 2 shows my Fair Value Estimate compared to First Call's Price Target for each company as of 1-11-2014 (Excel)
13 of the 16 stocks are down YTD, primarily the result of concerns over crude oil prices, weather related production issues and what impact the latest railroad accident may have up in North Dakota.
As you can tell from my previous posts, I have reviewed all 16 of my individual forecast models and made a few adjustments to my valuations. As a group, the Sweet 16 closed on Friday 49.9% below my Fair Value Estimate.
I have a very high level of confidence that 4th quarter results are going to be strong and year-end reserve reports are going to be very good. All of these companies have strong production and proven reserve growth locked in. The Sweet 16 is all about growth.
MTDR and SN, my new additions for this year, are both up nicely. BTW both companies thanked me for adding them to the portfolio. Maybe EPG is becoming famous! I hope to get them both to Dallas and Houston to host luncheons for us early this year.
BCEI is also up YTD because they have provided strong production guidance for 2014. I continue to be impressed by this company's management and technical teams. It closed on Friday at just 4.1X my CFPS estimate for 2014. After I see their year-end reserve report, there is a good chance I will be increasing the multiple that I am using to value this one. BCEI has been a big winner for us and I think the party continues in 2014 for this one.
OAS and SM look like "Screaming Buys" to me at their current share prices. My valuations are way above the current First Call prices targets for these two. I think their year-end reserve reports are going to draw a lot more attention from Wall Street. Both companies have very strong growth locked in.
GPOR has pulled back to a very attractive price. They announced a big increase in production - from 13,000 boepd in Q3 to 27,000 boepd at year-end. They went on to say that Q1 production would be flat with their exit rate of 27,000 boepd. They have had some weather related issues in eastern Ohio and the midstream companies are still running behind. IMO these are all "timing issues". GPOR should have "explosive" production growth this summer. They should ramp up to near 70,000 boepd by year-end AND their Canadian Oil Sands project is ramping up production. Use this dip in price to add GPOR or increase your position. There are very few mid-cap E&P companies with 300% production grow. In fact, GPOR is the only one I know of.
RRC and UNT have the most exposure to natural gas. UNT looks very attractive to me, but it trades at a lower multiple because it is lumped in with the other drillers. I think management may be thinking of spinning off the E&P subsidiary and they may sell the midstream business. Either one would draw a lot of attention and unlock a lot of value for shareholders. BTW the outlook for the onshore drillers looks good to me and will look even better if natural gas prices hold up.
There is still a lot of concern out there about crude oil prices. On Thursday the front month NYMEX contract broke the $92 support level, but bounce back quickly and then drifted higher on Friday. Friday afternoon's action looked very bullish to me with WTI closing near $93/bbl. WTI has been forming a well defined wedge pattern for three years. It broke above the wedge when it appeared Obama might start military action against Syria a few months ago. When the "war drums" settled down, WTI moved quickly back into the wedge pattern. $92 is now the bottom of the wedge. There is support at $90, $88 and VERY STRONG support at $84. July 2012 is the last time WTI dipped below $84 and it did not stay there for long. I do think WTI will dip during April/May due to the normal seasonal dip in demand and annual refinery maintenance, but $88 support should hold. Global demand for oil picks up in June.
As I have posted here several times, Saudi Arabia is now in total control of OPEC. They will aggressively defend $100/bbl for Brent. In fact, they prefer $110/bbl. Peace is not going to break-out in the Middle East / North Africa. Libya is a total mess, Iraq is heading there, sanctions will not be lifted against Iran unless they suddenly drop their nuclear programs completely. Sudan, Nigeria and Syria have lots of problems.
The U.S. and global economies are improving. Unless we head back into recession, there is ever-increasing demand for crude oil in this world. A recent EIA report forecasts Brent dipping to $102/bbl in early 2015 then moving higher as it becomes clear the U.S. shale plays cannot maintain the production growth we've seen the last two year. EIA now thinks U.S. crude oil production will peak in 2016 at 9.5 million bbls per day, far below our level of consumption. Every single oil field on this planet has peaked at some point then started to decline. The Bakken and Eagle Ford are no different.
Natural gas: Next Thursday's storage report could show a record draw over 300 bcf. It looks like the winter is not over yet and cold weather is returning late next week. If storage levels dip below 1,500 bcf (the lowest level in six years) and the forecast is for a cold March, we may see another run for gas prices. However, there is a lot of associated gas coming on-line in the Eagle Ford this year and production for the Marcellus continues to move higher. At best, I think gas will average $4.00 this year.
Hang tough, the Sweet 16 are going to report strong 4th quarter results soon.
> Tab 1 is a summary of the EPS and CFPS forecasts,
> Tab 2 shows my Fair Value Estimate compared to First Call's Price Target for each company as of 1-11-2014 (Excel)
13 of the 16 stocks are down YTD, primarily the result of concerns over crude oil prices, weather related production issues and what impact the latest railroad accident may have up in North Dakota.
As you can tell from my previous posts, I have reviewed all 16 of my individual forecast models and made a few adjustments to my valuations. As a group, the Sweet 16 closed on Friday 49.9% below my Fair Value Estimate.
I have a very high level of confidence that 4th quarter results are going to be strong and year-end reserve reports are going to be very good. All of these companies have strong production and proven reserve growth locked in. The Sweet 16 is all about growth.
MTDR and SN, my new additions for this year, are both up nicely. BTW both companies thanked me for adding them to the portfolio. Maybe EPG is becoming famous! I hope to get them both to Dallas and Houston to host luncheons for us early this year.
BCEI is also up YTD because they have provided strong production guidance for 2014. I continue to be impressed by this company's management and technical teams. It closed on Friday at just 4.1X my CFPS estimate for 2014. After I see their year-end reserve report, there is a good chance I will be increasing the multiple that I am using to value this one. BCEI has been a big winner for us and I think the party continues in 2014 for this one.
OAS and SM look like "Screaming Buys" to me at their current share prices. My valuations are way above the current First Call prices targets for these two. I think their year-end reserve reports are going to draw a lot more attention from Wall Street. Both companies have very strong growth locked in.
GPOR has pulled back to a very attractive price. They announced a big increase in production - from 13,000 boepd in Q3 to 27,000 boepd at year-end. They went on to say that Q1 production would be flat with their exit rate of 27,000 boepd. They have had some weather related issues in eastern Ohio and the midstream companies are still running behind. IMO these are all "timing issues". GPOR should have "explosive" production growth this summer. They should ramp up to near 70,000 boepd by year-end AND their Canadian Oil Sands project is ramping up production. Use this dip in price to add GPOR or increase your position. There are very few mid-cap E&P companies with 300% production grow. In fact, GPOR is the only one I know of.
RRC and UNT have the most exposure to natural gas. UNT looks very attractive to me, but it trades at a lower multiple because it is lumped in with the other drillers. I think management may be thinking of spinning off the E&P subsidiary and they may sell the midstream business. Either one would draw a lot of attention and unlock a lot of value for shareholders. BTW the outlook for the onshore drillers looks good to me and will look even better if natural gas prices hold up.
There is still a lot of concern out there about crude oil prices. On Thursday the front month NYMEX contract broke the $92 support level, but bounce back quickly and then drifted higher on Friday. Friday afternoon's action looked very bullish to me with WTI closing near $93/bbl. WTI has been forming a well defined wedge pattern for three years. It broke above the wedge when it appeared Obama might start military action against Syria a few months ago. When the "war drums" settled down, WTI moved quickly back into the wedge pattern. $92 is now the bottom of the wedge. There is support at $90, $88 and VERY STRONG support at $84. July 2012 is the last time WTI dipped below $84 and it did not stay there for long. I do think WTI will dip during April/May due to the normal seasonal dip in demand and annual refinery maintenance, but $88 support should hold. Global demand for oil picks up in June.
As I have posted here several times, Saudi Arabia is now in total control of OPEC. They will aggressively defend $100/bbl for Brent. In fact, they prefer $110/bbl. Peace is not going to break-out in the Middle East / North Africa. Libya is a total mess, Iraq is heading there, sanctions will not be lifted against Iran unless they suddenly drop their nuclear programs completely. Sudan, Nigeria and Syria have lots of problems.
The U.S. and global economies are improving. Unless we head back into recession, there is ever-increasing demand for crude oil in this world. A recent EIA report forecasts Brent dipping to $102/bbl in early 2015 then moving higher as it becomes clear the U.S. shale plays cannot maintain the production growth we've seen the last two year. EIA now thinks U.S. crude oil production will peak in 2016 at 9.5 million bbls per day, far below our level of consumption. Every single oil field on this planet has peaked at some point then started to decline. The Bakken and Eagle Ford are no different.
Natural gas: Next Thursday's storage report could show a record draw over 300 bcf. It looks like the winter is not over yet and cold weather is returning late next week. If storage levels dip below 1,500 bcf (the lowest level in six years) and the forecast is for a cold March, we may see another run for gas prices. However, there is a lot of associated gas coming on-line in the Eagle Ford this year and production for the Marcellus continues to move higher. At best, I think gas will average $4.00 this year.
Hang tough, the Sweet 16 are going to report strong 4th quarter results soon.