Sweet 16 Update - Sept 24

[dan_s]

The Sweet 16 moved 1.09% lower for the week ending Sept. 23. All of the losses coming on Friday. The Sweet 16 is up 37.88% YTD, compared to the S&P 500 Index that is up just 5.91% YTD.

All three of our gassers (AR, GPOR and RRC) were up this week. I hope all of you are taking my advice to get more exposure to gas. The U.S. gas market is going to be much tighter this winter than it was last year and forecasts are for a much colder winter than we had last year. I will focus on the gas market in tomorrow's podcast.

Not much else to add this week because I have focused on some of our midstream and Small-Cap Growth Portfolio companies this week. Plus, I am getting ready for my trip to Calgary on Monday. I will be speaking at the JLL Energy Conference on September 28.

I hope those of you in the Houston area take advantage of our offer to sign up for the JLL Energy Conference in Houston on October 3 at the Houstonian. EPG members get FREE ADMISSION. I will be there, but I'm not speaking. JLL does a great job and they have some very good speakers presenting. Arrive in time to join me for breakfast.

I will highlight more Sweet 16 companies in the next edition of The View From Houston, which will be sent out on Monday.

Three of our Small-Caps that look very good to me are:
> Earthstone Energy (ESTE), which recently acquired a nice block of Permian Basin leasehold. Their production is going up from 3,759 Boepd in Q2 to an exit rate over 6,000 Boepd. We will be sending out an updated profile on it on Saturday. Read it carefully.
> Lonestar Resources (LONE) is trading at the deepest discount to my valuation. First Call recently put up more detailed forecasts that are very close to mine. First Call's operating cash flow per share estimate for 2016 is $5.32 and for 2017 it is $5.72, so LONE is trading at less than 2X CFPS.
> Sanchez Energy (SN) also looks very cheap at today's share price. They have over 100% of their 2H 2016 crude oil production hedged at $62.00/Bbl, so these daily swings in the oil price have no impact on Sanchez's earnings and cash flows. SN also produces a lot of natural gas and NGLs. Q3 results are going to be a big improvement over Q2 and Q4 is really starting to look good.

All of the upstream companies are likely to move in lock step with commodity prices until Q3 results come out. Q2 was the low point for oil and gas prices, so Q3 results are going to be much better.

With OPEC meeting next week to discuss a possible production agreement, it should be an interesting week. Wouldn't it be nice if those clowns could come up with a workable agreement. A 5% production cut would send oil prices 25% higher quickly. I guess they don't teach math in the Middle East.

We have a very interesting speaker lined up for our luncheon in Houston on Friday, September 30. Lithium is become a big story, so here is your chance to hear from an expert on that space. Most of the major auto manufacturers have announced new electric car models, but they won't work without a lot of Lithium. PLEASE register on the website if you plan to attend or you can send an e-mail to Sabrina at energyprospectus@gmail.com