Energy Prospectus

Sweet 16 Growth Portfolio spreadsheet has been updated and posted under the Sweet 16 Tab:
> Tab 1 of the spreadsheet is a summary of my EPS and CFPS forecasts for each company
> Tab 2 shows my Fair Value Estimate compared to First Call's Price Target for each company as of 9-20-2014

As a group the Sweet 16 was down 0.83% last week. I know it seemed worse to a few of you.
The Sweet 16 is now up 18.91% year-to-date, compared to the S&P 500 index that is up 8.76% year-to-date.
Overall, this has been a good year for stocks.

The drag on the Sweet 16 last week was the CLR press release which took down the other Bakken companies, primarily OAS and WLL. I've already posted that I think CLR's dip was an over-reaction to their press release on Thursday.

I have double checked all of my forecast models and the Sweet 16 are ALL going to report solid 3rd quarter results.

Oasis Petroleum (OAS) may be the best buy of the pack right now. The share price is well off of their all-time high of $58.09 that was set in late July. The company is going to report strong production growth in Q3 and even a larger increase in Q4. My Fair Value Estimate is $69.50 and First Call's Price Target is $62.22.

Whiting Petroleum (WLL) is on-track to close the merger with Kodiak Oil & Gas (KOG) by the end of November. Heading into 2015, Whiting will be the #1 oil producer in North Dakota, passing CLR.

CLR's press released contained some very good news for Cimarex Energy (XEC) and Newfield Exploration (NFX). Both companies have a lot of leasehold and they are aggressively drilling around CLR's SCOOP play. Devon Energy (DVN) also has a lot of acreage in Oklahoma.

The primary reason the Sweet 16 share prices have pulled back is the recent decline in crude oil prices, driven lower by soft demand in August and September. Demand will be going up in October as winter approaches. The IEA recently (9/11/2014) updated their Global Oil Market Report, estimating that demand will increase by 500,000 bbls per day from Q3 to Q4. See http://omrpublic.iea.org/

OPEC is also taking steps to reduce supply, in an effort to push Brent back over $100/bbl.

Oil prices at two-year low. Why OPEC might change that.
By Nick Cunningham, Oilprice.com September 18, 2014

Oil prices have been declining for several months on an abundance of supply and weak demand. Now, the Organization of Petroleum Exporting Countries (OPEC) says the group may cut its production target in an effort to slow the slide in oil prices.

After several months of price declines, the secretary-general of the Organization of Petroleum Exporting Countries (OPEC) says the group may cut its production target for 2015 because of an abundance of supply.

The oil cartel accounts for around 40 percent of the world’s oil supply, and although its influence has diminished in recent years as oil output has risen -- from the United States in particular -- the organization can still significantly impact the price of crude if it wants to.

With weak demand and a flood of American oil hitting the markets, prices have dropped to their lowest levels in over two years.

And it appears that the price slide has gone too far for OPEC. OPEC’s Secretary-General Abdalla El-Badri said the group could slash its production target – the collective output of the 12-member group – to 29.5 million barrels per day (bpd) in 2015, down 500,000 bpd from its previous target.

“Our production will be maybe 29.5 million barrels per day in 2015, not 30 million barrels,” at OPEC headquarters in Vienna on Sept. 16. But he added, “This is an outlook, not a decision.”

It is estimated that Saudi Arabia has already cut production by 400,000 bbls per day.

Full article: http://www.csmonitor.com/Environment/En ... hange-that

This is the most telling statement in the article: "That means there could be a permanent floor beneath oil prices at somewhere in the mid-$90 per barrel range. OPEC’s members cannot sustain (their social programs with) prices any lower than that, so it will slash production in order to avoid ever going back to the days of oil selling between $70 and $80 per barrel."

It seems to me that the winds of deflation are blowing harder and harder every day. OPEC cutting production may simply be a futile effort.

OPEC can and will support oil prices. The U.S. still imports over 7 million bbls today, so we have very little control over oil prices.

The only countries that have significant net exports of oil are in OPEC, Canada and Russia.

Saudi Arabia can increase the price of oil just by saying they will cut back on exports.

You mentioned that OAS is one of your top picks, but it can't get any traction with the others trying to recover.

OAS is going to report very strong production growth the next two quarters. Q2 production was 43,668 boepd (89% crude oil) and they are on-track to exit 2014 with over 57,000 boepd (87% crude oil). First Call's Target Price is $62.11 today and that should go up after they report strong Q3 results.

You can find my current forecast model under the Sweet 16 tab.

Unfortunately they don't report until November. Hopefully the price won't be cut in half by then.