Sweet 16 Update - June 7

[dan_s]

The Sweet 16 Growth Portfolio spreadsheet has been updated and posted to the website.
> 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 6-7-2014

The Sweet 16 is now up 22.2% year-to-date compared to the S&P 500 Index, which is up 5.5%.

Two of this years additions (Matador Resources (MTDR) and Sanchez Energy (SN)) continue to lead the pack. They are both up more than 40% since being added to the portfolio on January 1, 2014. Carrizo Oil & Gas (CRZO), which was added 4-12-2014 is up 21.6% since that date and Devon Energy (DVN) is off to a good start.

Gulfport Energy (GPOR) moved back into the black for the year. The stock price got hammered when they lowered their production guidance but they are going to have the best year in company history. At the midpoint of their revised guidance, production will still be up more than 250% this year. None of the other Sweet-16 will come close to that.

GPOR is up 452.9% since I added it to the Sweet 16 on 1-1-2010. Not to shabby!

EOG Resources (EOG) continues to be one of darlings on Wall Street. Last week I saw a couple analysts raise their price forecast over my Fair Value Estimate of $123.50/share. EOG is primarily focused on increasing their liquids production, but it does produce a lot of natural gas ( 1.3 billion cubic feet per day ). If natural gas prices keep drifting higher Wall Street will fall deeper in love with this one.

Oasis Petroleum (OAS) and Kodiak Oil & Gas (KOG) have trailed the pack all year. Both companies are pure plays on the Williston Basin (Bakken & Three Forks). First quarter production and to a lesser extent the second quarter was hampered by weather in North Dakota, but they are both going to accelerate production in the 3rd quarter. In my opinion, OAS is a Strong Buy and KOG a Buy at today's share prices.

Devon Energy (DVN) has a market cap half that of EOG Resources (EOG), but it had more proven reserves as of 12-31-2014. Granted, EOG has a lot more 3P reserves, but DVN looks like a very good value right now. Devon is the largest acreage holder in the Barnett Shale and therefore is considered a "gasser", but they are now focused on increasing oil production and doing a darn good job of it. Devon is definitely a "Core Holding" quality company, so read our recent profile if you haven't already.

SM Energy (SM) is up 53.2% since being added to the Sweet 16, but it is down 9.5% YTD. Guess which company I get the most calls about! Wells Fargo downgraded SM Energy to Market Perform on June 6 citing a "negative risk/reward bias for commodities". If you know what that means, please let me know. IMHO the bias for both oil and gas prices is higher, based on the IEA's recent report that oil supply/demand is going to tighten in Q3 and the fact that U.S. natural gas storage levels are almost 900 BCF below the 5-year average. Regardless, SM is going to report solid earning this year and they should generate over $21 cash flow per share from operations in 2014. First Call's Price Target is now $91.72 and I think it is worth a lot more.

Matador Resources (MTDR) has confirmed they will stay with a four rig drilling program all year, two in the Eagle Ford and two in the Permian Basin. My valuations is $32/share, but I see a lot more upside for this one.

I am bullish on Unit Corp. (UNT) because of their E&P division's growth, but their drilling division is now looking a lot better to me. If I'm right about natural gas prices moving firmly over $5.00/mcf in the 3rd quarter, Unit will draw a lot of attention. The onshore drillers will be BIG WINNERS if gas prices keep moving higher.

All of the Sweet 16 company profiles and forecast models are now current. You can find them under the Sweet 16 Tab on the website. Remember, you must log on to see the current stuff on the website.

Triangle Petroleum (TPLM) reports their fiscal Q1 results on Monday, June 9. Their report should give us a nice preview of what to expect from our other Bakken companies. My valuation for TPLM is $14/share.

Hang tough; oil prices are moving up and natural gas is definitely going to get very interesting this summer.

[Laurin_DE]

Dan,
I own Kodiak for quite a while now (bought in the low 5s)... and used the weakness of TPLM, OAS and SM over the past months to diversity and shift some funds from KOG and WLL into these three...
judging from your fair value for Kodiak, which is not far from today's share price, I wonder whether the frequent overpromise-underdeliver of Kodiak still justifies holding it as a Bakken core investment.
Thanks for some comments.

Laurin

[dan_s]

KOG is at the bottom of my list for the Bakken companies. TPLM looks much better today. OAS and WLL look like "Screaming Buys" and both are going to put up strong 2nd half results.

KOG management has been guilty of "Over-Promising then Under-Delivering", BUT the company did increase production by 95% in 2013 and they are on-track for at least 35% production growth this year. What concerns me now is that KOG seems to be lagging behind the group on getting their completed well costs down. I am very impressed by what CLR, OAS and WLL are doing in this area. The results WLL is getting on new completion methods is very impressive and could lead to a HUGE proven reserve addition.

I still like KOG, but I like the others better right now. High oil prices will lift all the boats.

[dan_s]

I really like SM, but it is more of an Eagle Ford company. They have some good stuff in the Bakken and big potential in East Texas and the Powder River Basin.