Energy Prospectus

Each weekend I take a look at all of the Sweet 16 forecasts to see if any need to be updated. I compare them to those submitted to First Call (Reuters).

What's very interesting these days are how wide apart the different analysts are on their forecasts for 2015. For example, the 2015 EPS forecasts for SM Energy (SM) range from a ($0.45) to $6.48. This stuff happens because some firms are using very bearish oil and gas prices for all of 2015 and others (the high ones) have not updated their forecasts since the 3rd quarter results came out. First Call's "official" EPS forecasts are just an average of all the forecasts submitted to Reuters.

My current forecasts for the Sweet 16 companies are all in the lower half of the First Call range. I believe my forecasts are driven by reasonable production and "realized" oil & gas price assumptions. The realized prices for oil, NGLs and natural gas take into consideration hedges and regional price differentials. My valuations for each company are driven by multiples of my cash flow per share forecasts. You can see how I come up with my Fair Value Estimate for each company at the bottom of each forecast model.

When looking at upstream companies (all of the Sweet 16) it is VERY IMPORTANT to have a general understanding of the accounting rules for this sub-sector. During periods of volatile commodity prices there are going to be big differences between "Reported Earnings" and "Adjusted Earnings". First Call EPS estimates and my forecast should be compared to "Adjusted Earnings". "Reported Earnings" include all the crazy GAAP accounting rules that all energy sector analyst know are very distortive to investors. 4th quarter results are going to include HUGE mark-to-market adjustments on hedges and other non-cash charges (ceiling-test writedowns and impairment charges). Actually, the most important thing to look at in year-end reports for E&P companies is the 3rd party reserve reports.

The Sweet 16 made a big move up on Friday and now is only down 0.64% for the year. It may surprise you that Continental Resources (CLR) leads the pack, up 18.35% YTD. CLR is the only company that has none of its 2015 oil production hedged.

The next edition of The View From Houston will be published on Monday, so I will save my thought on the group for the newsletter.

I am posting a lot of updated forecast models for the Sweet 16 to the website today.

I noticed that you lowered your fair value estimate on CRZO from 59.40 on Jan. 24 to 53.80 today. What has changed in only one week? I've been thinking about taking a position, but am nervous after last years massive losses. Also this seems to be a traders' market.

I had not taken a hard look at the CRZO forecast since December. I just adjusted the oil & gas prices and lowered the multiple of CFPS one notch. CRZO is solid and they have a great team.

When Q4 results and year-end reserve reports come out, we will be updating all of the profiles and valuations again.

I am unable to find Dan's weekly update of Sweet 16 valuation by company compared to First Call's forecast. When I click on Sweet 16 at Home Page there is a button that supposedly takes me to the tables but all I get is a listing of % of Production Hedged. Confusing What am i missing??

That is my screw-up. I told Sabrina a post the schedule of hedges and I was not crystal clear where I wanted her to post it. We will repost the Sweet 16 valuations tonight. You can also see them in the newsletter on page 5.