Sweet 16 Update - September 3

[dan_s]

The Sweet 16 moved up by 1.13% during the week ending September 2 and is now up 47.66% year-to-date. The S&P 500 Index is up just 6.66% YTD.

I increased my valuations for Antero Resources (AR) to $40.00 and Diamondback Energy (FANG) to $102.00. I wrote a special report for OilPrice.com on Wednesday that featured Antero, so I took a very hard look at the company. Antero has HUGE 3P reserves (over 50 TCFE) and their recent acquisition from SWN is going to look brilliant at year-end when gas and NGL prices are a lot higher.

Wall Street is head-over-heals in love with FANG and it does have a pristine balance sheet. Their stake in Viper Energy Partners LP (VNOM) is worth about $20/share. It is a pure play on the Permian Basin. I like CXO, PXD, PE and RSPP better for exposure to the Permian. Other Sweet 16 with large stakes in the Permian are XEC, EOG, PDCE and SM.

Outside of the Permian, the only areas with good well level economics at $45 oil are SCOOP/STACK and the very best leasehold in the Eagle Ford.
Sweet 16 in SCOOP/STACK are: CLR, DVN, NFX and XEC.
The best Eagle Ford company is EOG.

The initiatives to ban fracking in Colorado have been thrown out, so it is now safe to by NBL and PDCE, which are both trading way below my valuations.

Sweet 16 trading at more than 30% below my valuation: AR, DVN, GPOR, NFX, NBL, PDCE and SM. PDCE and SM recently announced BIG acquisitions in the Permian Basin that should draw a lot more attention from Wall Street.

I recommend all of you add more natural gas and NGL exposure to your portfolios. AR, GPOR and RRC have the most exposure to natural gas and NGLs.

My valuations assume the following commodity prices:
Q3: $45 for oil and $2.50 for natural gas (WTI and Henry Hub)
Q4: $55 for oil and $3.00 for natural gas
2017: $60 for oil and $3.25 for natural gas
For each company, I make adjustment for their hedges and regional price differentials. A table of each company's hedges can be found at the bottom of each forecast model. The forecast models are "macro driven" Excel spreadsheets, so all you have to do is change the commodity prices at the bottom to see how it impacts EPS, CFPS and valuation.

All of the Sweet 16 profiles and forecast models have been updated. You can download them from the EPG website.

I will have more in the newsletter that we will send out late on Tuesday or Wednesday morning.

[dan_s]

EQT Corporation (EQT) is another "gasser" that looks very good to me. It closed on Sept 2 at $71.82 and First Call's price target is $84.90.

As soon as I finish the next newsletter, I will finish the EQT profile that has been prepared by Steven Lightbody (our #1 SMU MBA Intern). We should send it out the middle of next week. EQT is Robert Rapier's #1 pick for natural gas.