Energy Prospectus

I am in the process of updating all the S-16 forecast models to assume $85/bbl WTI for Q4 and 2015.
So far, the forecasts for BCEI, CRZO, CXO, XEC, OAS, SN, and SM have been updated and posted to the website.

This price change does not bring down the valuations as much as you might think. That's because these companies sell more than crude oil (natural gas prices have held up) and they have active hedging programs. For example, OAS has 60% of 2015 oil hedged at over $90/bbl.

I have to run over to the U of H now because I agreed to be on a panel at their energy conference today with Leslie Haynes, editor of Hart's Energy Investor magazine. I will get all of the Sweet 16 forecast models updated this weekend and I will have more comments about the Sweet 16 posted here by Sunday evening. All of the Sweet 16 are going to have good 3Q results.

The Sweet 16 is now down 5.43% YTD, compared to the S&P Index that is up 3.12% YTD.

The University of Houston panel discussion was interesting. It went on for about 90 minutes.

We all agreed the general market selloff is an over-reaction to a lot of fear (Russia, ISIS, Ebola, talk of a slowdown in China and recession in Europe).

IMO the oil price could still go lower, BUT I think we are close to a bottom. I am basing this on a belief that Saudi Arabia will not sit back and let Brent go below $90/bbl for long. They may be allowing oil prices to go down as a way to punish Russia and help Europe get back on its feet. This dip in oil prices definitely has a lot to do with a spike in the U.S. Dollar Index (http://www.marketwatch.com/investing/index/dxy/charts) + the seasonal dip in oil demand that happens every September.

The panel agreed the situation with ISIS is probably going to get worse before it gets better. If ISIS moves south of Baghdad, it will be a threat to some of the largest Middle East oilfields. If ISIS is perceived to be a direct threat to Saudi Arabia, the energy markets could go crazy. If the West sits back and lets that happen, IMO we've lost our minds.

Watch this video: http://video.cnbc.com/gallery/?video=30 ... &par=yahoo

Newfield Exploration (NFX) recently put out a slide presentation to explain how their hedging program protects their revenues if oil prices stay down for awhile. They have about 50% of their oil hedged at over $90 through 2016.

See: http://www.newfield.com/assets/pdf/@NFX_2014-10-06.pdf

I am expecting a lot of the upstream companies to spend time on their Q3 conference calls talking about this topic. All of the Sweet 16 have active hedging programs to protect their revenues.