Sweet 16 Update - May 10

[dan_s]

The Sweet 16 was down about 3.5% last week, primarily on the big drops by BCEI and GPOR. XEC and EOG were the big winners this week. XEC raised production guidance and EOG affirmed their guidance and announced some very good well results.

The good news across the board is that completed well costs are going down and results from new horizontal well completion methods are very encouraging.

Gulfport Energy (GPOR) actually had a good first quarter but they announced a big cut to their production guidance after the market closed on Wednesday, It caused a big dip in after-hours trading that carried over to the next morning. In my opinion, the market grossly over-reacted. This tends to happen the morning after a company announces disappointing news after the market closes the day before. Investors panic when they don’t have details and an lot of Thursday morning’s selloff may have been triggered by stop loss orders.

After listening to Gulfport's conference call on Thursday morning, it is clear that nothing is wrong with their Utica Shale acreage. In fact, they have increased the size of the play. All they are doing is slowing down to take a hard look at how best to produce the wells and develop their acreage. I like the new plan. The share price was up in afternoon trading on Thursday and another $1.50 on Friday on very high volume, which is a good sign. Keep in mind that even at the low end of their revised guidance, GPOR's production will be up ~250% this year.

Bonanza Creek's (BCEI) dip is all weather related and, as I have posted here numerous times, weather related problems are temporary. The stock price came off the low in the last hour of trading on Friday. First quarter production was in-line with guidance and they are still on-track to more than 40% production growth this year. First quarter earnings were off due to onetime expenses, higher LOE due to weather and the mark-to-market adjustment on hedges (a non-cash item). I have lowered my valuation to $60.20 because I am now using the low end of their production guidance in my model just to err on the side of being more conservative.

Matador Resources (MTDR) was down because Q1 production was down slightly from Q4. I see nothing to be concerned about and I have raised my valuation by $3.50 to $32.50. The company is going to be completing a bunch of high rate Eagle Ford wells this year and early results in their Permian Basin drilling program are very encouraging.

Cimarex Energy (XEC) had fantastic Q1 results and I have increased my valuation $28.70 to $181.00 per share. Based on their revised production guidance, my forecast for 2015 now looks way too low. There is definitely a lot more upside for this first class company. XEC announced a joint venture with Devon Energy (DVN), which now looks like a strong candidate to move into our Sweet 16.

RRC and UNT had rock solid first quarter results, but they pulled back with the slight dip in natural gas prices. I remain very bullish on natural gas prices. The EIA’s storage report on Thursday convinced me that storage will be at least 800 bcf below the 5-year average at the end of May. It will sink in this summer that the storage level will be too low to make it through another cold winter and we should see good prices for gas all year.

Concho Resources (CXO) will report first quarter results on Monday.

Aside from some weather related issues, all of the first quarter results looked good. All of my forecast models (except for CXO) have been updated and they are available under the Sweet 16 Tab.

An Excel spreadsheet that shows my valuation for each company compared to First Call’s Price Target can also be found under the Sweet 16 Tab. I update it each weekend.