Sweet 16 Update - Jan 28

[dan_s]

The Sweet 16 is now up 2.45% YTD, compared to the S&P 500 Index that is up 2.50% YTD.

Range Resources (RRC) made a big more up on Friday because they announced a 22% increase in the proven reserves YOY.

I expect all of the Sweet 16 to have impressive year-end reserve reports. Why? because horizontal well results have improved significantly in 2016. Completed well costs have come down and more locations have been "proven". Plus, SEC rules only include proven reserves that are going to be developed in the next five years. All of these large-caps have a lot larger 5-year plans than they had a year ago. Lower D&C costs mean more locations will be drilled for the same money.

More proven reserves will lower DD&A expense going forward. < It is very important that energy sector investors understand this concept.

The Sweet 16 has quite a range of market caps. Here are the companies from highest to lowest market caps. Some of the companies in the upper half of this list are quite new. CXO, FANG and FANG are incredible growth stories.

EOG: $59.320 Billion
PXD: $30.800 Billion < Will be the first company to announce Q4 financial results on Feb 7, a week earlier than all of the others
DVN: $24.420 Billion
CXO: $20.910 Billion
CLR: $18.480 Billion < How many of you thought Concho Resources was larger than Continental Resources?
NBL: $17.250 Billion
XEC: $13.240 Billion
FANG: $9.620 Billion
RRC: $8.720 Billion
PE: $8.700 Billion
NFX: $8.240 Billion
AR: $8.120 Billion
RSPP: $6.130 Billion
PDCE: $4,970 Billion
GPOR $3.510 Billion < If I am right about natural gas and NGL prices, Gulfport has a lot of upside from here.
SM: $3.360 Billion

I have updated all of the Sweet 16 individual company forecast/valuation models. You can download them from the EPG website.

As of the close on Friday, January 27, the Sweet 16 is trading 42% below my current valuations. This means that if my assumptions used in the forecast models (production & commodity prices) are accurate, this should be a very good year for us. My oil price assumptions are above the strip and my natural gas price assumptions now look a bit too low to me. I am assuming that NGL's ramp up to about 50% of WTI. Each company has a different mix of NGLs, so I try to take that into consideration.

Keep an eye on the national weather forecast for February. Dr. Joe Bastardi, which some of you don't seem to like, has been predicting a colder than normal February since November. Check the Chicago forecast at: https://www.wunderground.com/
In addition to the temps, keep an eye on the wind speed.

To see my valuation of each stock and First Call's price target for each stock, go to the Sweet 16 spreadsheet on the website. This may be the most valuable information on the EPG website. I update it each weekend, so get in the habit of downloading it each Sunday or Monday morning.

GPOR, AR and SM are trading at the largest discounts to my valuations. All three companies produce a lot of gas and NGLs.