Energy Prospectus

Sanchez Energy (SN): An updated profile and forecast model has been posted under the Sweet 16 Tab.

They now have a clear path to 50,000 boe per day of production.

I was going to sell that one when it broke the 200 day MA at 29, but you said to "hang tough". Now you see where it is. I had a nice gain that turned into a loss. Painful!

Judy;
I know it is painful. I see my own portfolio each day. That said, let me assure you that all of the Sweet 16 are going to be fine, unless oil goes a lot lower and stays low for a long time. Sanchez has the operating cash flow and liquidity to survive.

Morningstar Equity ResearchOctober 21, 2014
“We think the 20%-30% sell-off in energy stocks is overdone, even if you assume WTI prices fall to, and remain at, $75 per barrel through the end of 2016.”
“… $75 WTI through 2016 would lead to 5%-10% reductions in fair value estimates across oil-weighted E&Ps and services companies, suggesting that investors focused on stock selection can now buy quality franchises at 15%-20% discounts.”

Here are a few things the market is missing:
1. All of these companies sell more than just crude oil. Natural gas and NGL prices have held up. Sanchez production mix is 26% natural gas, 27% NGLs and 47% crude oil. I think natural gas and NGL prices (especially propane) could be a lot higher in the first quarter.
2. Hedges soften the blow of declining oil prices. Sanchez has over 50% of their 4th quarter production hedged at over $90/bbl
3. Lower oil prices also lower operating expenses and production taxes.

Dan, I only have myself to blame for sheer stupidity in not selling and should not have even asked questions. I've lost a lot of money in the past and really don't want to go there again. When the market speaks and everyone is selling, it's not a good idea to try and hang in there regardless of the fundamentals. I don't even want to add up what I've lost, but it's somewhere around $125K.

You have not lost any money until you sell. I have a paper loss much greater than you have, but I don't need
the money now so I intend to wait out this sell off confident that oil prices will eventually recover.

like the other fella said, you don't lose money until you sell. It rattles the nerves to sit and watch holdings in the red, day after day, and see unrealized losses continuing to mount.

In 2008, I lost a lot more than that and it took years to crawl my way back, but I believe fundamentals do win out in the end. In 2008, GPOR was trading under $3/share. Take a look at it now.

Joe Dancy, one of our Dallas members, sent me an article once that explained why most individual investors loose money in the stock market (and I am guilty of this). We do not harvest profits when we should (we fall in love with our holdings) and take losses when we should not (ignoring the fundamentals).

My take on the recent selloff is that:
1. The companies were not trading anywhere near their break-up value when oil was over $100/bbl, so the recent +30% pullback is not justified.
2. They are now trading as if oil prices will go much lower and stay lower forever.

For example, I just finished working on the profile for Continental Resources (CLR). The stock closed today at $56.20/share. To get that valuation from my forecast model, I have to take oil to $50/bbl and assume it is going to stay that low forever.

I've been doing this for a long time and the problem I see over and over with Wall Street is that if they see oil & gas prices going down, they think they will keep going down.

There is ZERO chance of oil going to $50/bbl and staying there. OPEC will not allow it and global production would drop off a cliff.

Only a Global Economic Meltdown will cause a prolonged period of low oil prices and no one is predicting that. We may stay in the $70-$80 range for awhile, but I see zero chance of it lasting. BTW, one thing that is feeding the drop in oil prices is that the counter-parties to the hedges are shorting oil futures contracts to protect themselves.