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The View fromHOUSTON

“Seek and ye shall find.”At EPG we are seeking out the best energy stocks and we bring those companies to the attention of our members.

By: Dan Steffens, President

Energy Prospectus Newsletter: "The View from Houston” July 26, 2016 Issue: 124

INSIDE THIS ISSUE

3 IEA:Oil Market Report

5 Natural Gas

6 Sweet 16 Growth Portfolio

7 Small-Cap Growth Portfolio

9 High Yield Income Portfolio

Dan Steffens is the President of Energy Prospectus Group (EPG), a networking orga-nization based in Houston, Texas. He is a 1976 graduate of Tulsa

University with an undergraduate degree in Accounting and a Masters in Taxation.

Mr. Steffens began his career in public accounting, becoming licensed as a CPA in 1978. After four years in public accounting, he transitioned to the oil & gas industry with the bulk of his time (18 years) spent with Amerada Hess Corporation (HES). He served as the Hess United States E&P Division Controller from 1994 to 2001.

Oil PricesMany investors are worried that this summer will be a repeat of last year’s steady decline in oil prices. I do not see that as a possibility. The global oil market is in a much different place today and I do not believe the next six months will be a repeat of last year’s “road to destruction”.

You may recall that in early 2015 the price of West Texas Intermediate

(WTI) bounced off the mid-$40s per barrel in March and topped out at approximately $61.00/bbl in June. After an OPEC meeting in June, 2015 it quickly became clear that Saudi Arabia was determined to stick with their program of over-production to gain market share. WTI proceeded to drop until setting a double bottom in February, 2016 at around $26.00/bbl. This year, a rally began in late February, peaked in Mid-June and appears to be following an eerily similar path to 2015.

None of our model portfolio companies had released 2nd quarter financial results when I sat down to write this newsletter, so I’m going to spend more time on the Big Picture. The next newsletter will have more information on the individual companies. I have tweaked a few of my forecast models, so several stock valuations have changed just a bit.

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In my opinion, the recent pull back in oil prices is a direct result of the Brexit vote that has created global economic concerns and a strong U.S. dollar. A strong dollar is likely to pressure oil prices for a few months. However, the global oil markets are much tighter today than they were a year ago. Despite the fears surrounding the European market, price-induced demand growth remains well above the 10-year trend.

Why this year is different

Saudi Arabia has accomplished their goal of gaining market share and they have adopted a more conciliatory market share policy. Supply disruptions in Canada, Nigeria, Libya and Venezuela have accelerated the inevitable rebalancing of the global oil market much sooner than most Wall Street analysts predicted just a few months ago. Therefore, I expect crude oil prices to stabilize within a few weeks

and then march higher into year-end. Within six to nine months I believe WTI will be testing $70.00/bbl. Raymond James forecast for Q1 2017 is $75.00/bbl.

U.S. oil and gas production is now on steady decline and I expect the decline to accelerate in the 3rd quarter, despite a recent uptick in the active drilling rig count. I follow a lot of upstream companies and very few of them have modified their capital programs. The U.S. active rig count is up more than 50 rigs off the April bottom, but well completions are not even close to what is needed to stabilize U.S. production. It is also important to keep in mind that there is about a 90-day lag between a change in the active rig count and production response. During the six months that ended June 30, 2016, the number of rigs drilling for oil in North America declined by 195 or more than 36%. That sharp decline is just recently showing up in an acceleration of the U.S. production decline.

On July 18th the U.S. Energy Information Administration (EIA) updated their Drilling Productivity Report, which tracks production in seven major producing regions in

EPG Coming Events Our luncheons in Houston and Dallas give EPG members and their guests an opportunity to meet the top management of some of the most promising small and mid-cap energy companies that we track. Members and guests need to register on our website.

Our luncheons are free for EPG members and just $40 for non-members that register through our website or $50 at the door.

Tuesday, July 26: Lonestar Resources (LONE) is hosting a luncheon at the Hess Club, 5430 Westheimer, Houston, Texas. Lonestar is one of the companies in our Small-Cap Growth Portfolio. Frank Bracken, CEO, will update us on Lonestar’s plans to develop their Eagle Ford leasehold.

Visit energyprospectus.com to register.

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the U.S. It shows steady production declines across the nation. Keep in mind that outside of these regions (except for SCOOP & STACK in Oklahoma) there is almost no drilling activity today.

The U.S. is now importing almost 50% of the oil it consumes each day. Further verification of a balanced global oil market is falling U.S. crude oil inventories. Despite a steady increase in imports (~8,000,000 barrels per day over the last six weeks per the EIA), U.S. crude oil in storage has been on decline since mid-April. I expect this trend to continue at least through September. Demand for transportation fuels (gasoline and diesel) has increase in the U.S. by more than 1,000,000 barrels per day year-over-year, thanks to lower fuel prices and a spike is SUV sales.

Many Americans believe that, thanks to the “Shale Oil Boom” the United States is close to being energy independent. Nothing could be further from the truth. Here are some statistics from the Department of Energy’s EIA website. Over the last six weeks:

• U.S. crude oil production has averaged 8,570,000 barrels per day (down ~1.0 MMBOPD in one year)

• During the last six weeks, U.S. production has declined 222,000 barrels per day

• U.S. crude oil imports have

averaged 7,992,000 barrels per day• During the last six weeks, U.S.

crude oil imports have increased 512,000 barrels per day

At the rate we are going, the United States will be dependent on imports for more than 50% of the oil we consume to run our economy by year-end.

The summer months are the peak demand period for transportation fu-els. Refiners are drawing down their crude oil inventories to produce more gasoline and diesel. U.S. refin-ers are also exporting more refined products, primarily to Latin America where oil production is also falling.

IEA: Oil Market ReportThe International Energy Agency, based in Paris, France (IEA), released their monthly “Oil Market Report” on July 13th. The market’s initial reaction to the report was negative and crude oil prices dipped, primary because the first bullet point in the report summary was “Global Oil Supplies rose 600,000 barrels per day in June.”

After the oil speculators’ initial knee jerk reaction, crude oil prices rebounded on July 14 & 15 as the overall tone of the report is bullish.

• Demand for oil remains strong: The agency adjusted their global demand estimates higher, notching 2016 to 1.4 million b/d and moving up 2017 estimates to 1.3 million b/d. The increased demand estimates were driven largely by non-OECD countries, with China’s demand up 300,000 b/d and other Asia up 600,000 b/d. OECD countries’ demand growth is also up 200,000 b/d.

• Non-OPEC Production: The agency made no major changes and is essentially staying with its 2016 non-OPEC production decline of 900,000 b/d with the majority

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occurring in the U.S. The IEA’s 2017 call is for Non-OPEC production growth of about 300,000 b/d, mainly from the U.S. I believe this is too optimistic. Two days after the IEA’s report, Reuters reported China's domestic crude oil production during 1H 2016 fell 4.6% from a year ago as producers cut back because of lower oil prices. Core Laboratories (CLB) on their July 22nd second quarter conference call said they believe U.S. oil production will stay on decline through 2017.

• OPEC Production: June 2016 oil production was up 400,000 b/d month-over-month led by Saudi Arabia (up 200,000 b/d) and Nigeria (up 130,000 b/d, from repairs to offline facilities). Iran and Iraq were basically flat at 3.7 million b/d and 4.3 million b/d respectively. The Saudi increase is likely seasonal, in my view, probably to meet increased summer power generation demand. Important point here is that the increased Saudi production does not increase exports, but is being consumed in country.

• IEA Conclusion: “Our underlying message that the market is heading to balance remains on track, but the modest fall back in oil prices in recent days to closer to $45/bbl is a reminder that the

road ahead is far from smooth.”

My opinion is that it will be difficult for Non-OPEC producers to reverse the steady decline in production because of the devastation this oil price cycle has done to the oilfield services firms. IEA’s prediction that U.S. production will rebound in 2017 is optimistic and even if that does happen, outside of the U.S. I expect continuing declines, especially in Latin America and the North Sea.

On July 14th, Reuters ran a story that I believe was spot on concerning this subject. The news agency reported that conversations with larger producers, contractors and suppliers suggest that any recovery

will look very different from the 2009-2014 shale boom. The loss of thousands of oil field workers during the two-year downturn and dearth of candidates to replace them is just one challenge. More than 100,000 U.S. oil and gas jobs have been lost since late 2014, according to the Bureau of Labor Statistics. If you live in Houston, you know that layoffs are continuing. Early retirements of experienced workers, minimal hiring of new graduates and a loss of early-career professionals to other industries has reduced the workforce.

“The latest rout in oil prices has been the last straw for many workers just getting back on their feet after the last downturn in 2008.” said Reg MacDonald, president of Maritime Drilling Schools Ltd in Canada, which trains workers for oilfield jobs all over the world.

U.S. oil production will not rise until 2018

My opinion is that regardless of how high oil prices go, it will take up to a year before drilling & completion activity can ramp to the level necessary to stabilize U.S. oil production. Remember that even if there is a significant increase in capital expenditures during the first half of 2017, production growth will not show up until many months later.

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As IEA concluded above, “the road ahead is far from smooth”, but we clearly need much higher oil prices to attract the capital necessary to develop the oil and gas supplies we’ll need by the end of this decade.

I work hard to find companies that are well positioned to lead the industry rebound. Investors that understand that major oil price cycles tend to over-shoot the mark, resulting in supply shortages and price spikes, should have market beating gains to harvest within 12 to 18 months.

Natural GasThe U.S. natural gas market and to a lesser extent the NGL market, is much different than the crude oil market. Crude oil trades globally and natural gas prices are set by regional supply / demand fundamentals. You may recall that while oil prices were in free fall in 2014 the price of gas stayed over $4.00/mmbtu until the El Nino warm winter left us over-supplied.

My near-term (6-9 months) outlook for higher natural gas prices continues to strengthen. The U.S. is the largest consumer of natural gas in the world and we are blessed with abundant natural gas reserves. However, natural gas in the ground is much different than production capacity. North American natural gas production capacity is now falling fast. See IEA’s Drilling Productivity chart above.

The number of rigs drilling for natural gas in the U.S. and Canada has dropped 72% over the last two years. Since production from most natural gas wells declines rapidly after the wells are completed to sales lines, upstream companies must keep drilling new wells just to hold production steady. We are no longer completing enough new wells to offset the decline of existing wells. Making the situation worse for gas consumers (and better for investors in upstream companies) is the fact that the U.S. has very limited import

Natural gas demand in the U.S. (including exports) is expected to increase 3 Bcf per day year-over-year in 2016 to 83 Bcf per day and a hot summer may increase demand even further. The U.S. does have a lot of gas in storage today, but storage levels are rapidly moving back to the 5-Yr average. Keep in mind that U.S. consumption of natural gas has increased by approximately 10 Bcf per day in the last five years, so the utilities need more gas in storage to provide an adequate cushion against spikes in demand and supply disruptions.

The combination of rising demand and falling production has pushed the natural gas price up from $1.70/mmbtu in February to near $3.00/mmbtu at the end of June. The price of gas has pulled back a bit in July, but my prediction is that we will see gas trading for more than $4.00/mmbtu by Christmas. The January NYMEX contract for natural gas is already trading over $3.25/mmbtu.

Natural gas liquids (NGL) prices have also started to improve, thanks to falling production and increased industrial demand. NGLs are a combination of a lot of different products, but propane is a large percentage of the mix. In rural areas a lot of homes heat with propane

capacity. In fact, the U.S. is on-track to become a net exporter of natural gas by the year 2020.

• U.S. and Canadian natural gas production is now on steady decline and the rate of decline has accelerated. The EIA’s Drilling Productivity Report (above) shows that two of the three largest natural gas fields in the U.S., the Haynesville and Marcellus are now on decline.

• Production from the Barnett Shale in Texas has been on decline for years.

• Production from the Fayetteville Shale in Arkansas is on decline because Southwestern Energy (SWN) halted all drilling activity mid-2015 due to financial difficulties.

• Associated gas production from the oil shale plays (the Bakken, Eagle Ford, Niobrara and Permian Basin) is falling even faster.

• There is some production growth coming from the SCOOP & STACK oil plays in Oklahoma and from the Gulf of Mexico, but not enough to offset the production declines listed above.

• Kinder Morgan (KMI) recently reported that natural gas exports to Mexico are now closing in on 3 Bcf per day.

The U.S. is the World’s Largest Gas Market

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and the last El Nino warm winter significantly reduced propane demand. The El Nino has faded, so a normal winter is now expected in North America.

If you are investing in upstream oil & gas companies it is important to know their production mix. All upstream companies sell a combination of crude oil, natural gas and NGLs. These products all trade on markets that have different fundamentals. All of the individual company forecast models housed on our website contain a table showing production mix.

Sweet 16 Growth PortfolioThe Sweet 16 is up 29.8% year-to-date. Compared to the S&P 500 Index that is up just 6.4% the portfolio is doing fantastic. This is not surprising since the upstream sector was grossly oversold at the end of 2015.

Not much new to report for the Sweet 16 since my last newsletter, but I did take a hard look at Parsley Energy (PE) and I raised my valuation to $33.50.

Parsley Energy is a “Growth Machine”. It has identified over 1,600 low-risk / high-rate horizontal drilling locations in the Permian Basin, so it has a lot more grow ahead.

Parsley’s averaged 5,011 boe per day production in 2013 and they finished 2015 strong, averaging 25,207 boe per day in the 4th quarter. First quarter 2016 production was 29,088 boe per day. The company raised their pro-duction guidance in May (something they seem to do each quarter) and they are now forecasting 50% to 60% year-over-year production growth in 2016. Parsley can continue this ag-gressive approach because they have more than 100% of their anticipated oil production for 2016 hedged.

Parsley’s business plan is similar to Diamondback Energy (FANG). It is focused on developing stacked pay

zones under their leasehold and they continue to get impressive well results in several zones.

On May 23, 2016 Parsley announced that it entered into an agreement to acquire mineral rights under approxi-mately 30,000 acres consisting of Pars-ley leasehold and other adjacent prop-erties in Pecos and Reeves Counties, Texas in the Southern Delaware Basin (a sub-basin of the Permian Basin) for $280.5 million in cash. This acquisition will close by the end of July. This is a significant step in the company’s growth as it establishes another core area for horizontal development drilling.

• Acquired mineral rights in 29,813 acres (hereafter "mineral acreage") with an average royalty interest of 17.5%.

• Mineral rights boost net revenue interest ("NRI") on approximately 186 gross/net horizontal drilling lo-cations in the upper Wolfcamp in-terval, assuming one flow unit and 660' between-well spacing. The Company is assessing the poten-tial for additional flow units in the Wolfcamp complex and the Bone Spring interval on acreage associ-ated with acquired mineral rights.

• The average NRI on horizontal drill-ing locations associated with ac-quired mineral rights increases from 75% to 92.5%.

• Estimated net current production associated with acquired mineral rights is approximately 280 barrels of oil equivalent per day.

• 82% of mineral acreage represents Parsley leasehold, with the balance leased and operated by other operators.

Company Name Primary Product

Stock Symbol

Share Price

EPG Fair Value

Estimate

Percent Undervalued

7/22/16

ANTERO RESOURCES GAS AR $26.19 $37.40 42.80%

CARRIZO OIL & GAS OIL CRZO $34.66 $51.50 48.59%

CONCHO RESOURCES OIL CXO $122.84 $133.00 8.27%

CIMAREX ENERGY OIL XEC $118.38 $125.00 5.59%

CONTINENTAL RESOURCES OIL CLR $44.90 $50.90 13.36%

DEVON ENERGY OIL DVN $37.75 $56.00 48.34%

EOG RESOURCES OIL EOG $80.98 $91.00 12.37%

DIAMONDBACK ENERGY OIL FANG $88.23 $99.00 12.21%

GULFPORT ENERGY CORP GAS GPOR $29.59 $46.00 55.46%

NEWFIELD EXPLORATION OIL NFX $44.43 $55.45 24.80%

NOBLE ENERGY OIL NBL $35.03 $44.50 27.03%

PARSLEY ENERGY OIL PE $27.95 $33.50 19.86%

PDC ENERGY OIL PDCE $51.56 $93.00 80.37%

PIONEER NATURAL RESOURCES OIL PXD $153.40 $185.00 20.60%

RANGE RESOURCES GAS RRC $41.13 $47.80 16.22%

SM ENERGY OIL SM $26.39 $48.00 81.89%

Sweet 16 Growth Portfolio

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• Parsley also acquired surface rights on approximately 80% of mineral acreage, eliminating compensation for surface damages and water pro-curement, among other costs, and also facilitating optimal well and fa-cility placement.

• Consistent with the Company's pre-viously announced capital plan, Parsley expects to complete 5-7 wells in the Southern Delaware Ba-sin this year. Of these, the Company expects 3-5 to be completed on the acquired mineral acreage.

“After analyzing the 20 most nearby wells to PE's 41,609 net acre position in the Delaware Basin, we estimate results are trending above our new 1,000,000 Boe type curve (based on

a 7,500' lateral). The company's first operated well, the Trees State 16-1H, and the Jagged Peak-operated Cilantro 2524-C3-1H, are beating our type curve by 23% after being online 6 months. We are raising our target price 13% to $34/share based on continued outperformance of PE's first operated Southern Delaware Wolfcamp and strong results from offset operators.” – Stifel update on July 17, 2016

A “Type Curve” is a pre-drill estimate of what the company expects a well to produce. Since there has been extensive industry drilling activity in the Permian Basin, type curves are becoming quite accurate. Parsley and other operators are now

reporting more wells that produce at rates above the type curves because of improving completion technology, targeted fracs, and using a lot more sand per well. The use of more sand per well across the Permian Basin is extremely good news for Hi-Crush Partners LP (HCLP), a pure play frac sand company.

Devon Energy (DVN) should get a lot of attention during the second half of this year. Non-core asset sales will bring in $3.1 billion in cash to a company that already had close to $5 Billion in liquidity. 60% of their 2016 capital program ($1.3 Billion) is focused on increasing production in STACK and the Permian Basin.

The Sweet 16 will start releasing 2nd quarter financial results next week. I will be listening to their conference calls, updating my forecasts and posting my comments to the EPG Forum.

Disclosure: I have long positions in AR, BBEP, CLR, DDRI, DNR, DVN, EOG, GPOR, GST, HCLP, LINE, LONE, MEMP, MTDR, MPLX, RRC, and SN. I do not intend on buying or selling any securities mentioned in this newsletter within 72 hours of the publication date on page one. I am not receiving compensation from any of the companies mentioned in this newsletter. See the DISCLAIMER on the last page of this newsletter for more details.

Small-Cap PortfolioSmall-caps have more risk than the larger companies in our Sweet 16, but they also have more potential. As Wall Street gains more confidence in oil & gas prices, these are the companies that will draw the next wave of attention.

New ProfilesThe following reports were posted to the website since our last newsletter:

• Updated Net Income and Cash Flow Forecasts for several of our Sweet 16 and other portfolio companies

• A table of our Fair Value estimates for each Sweet 16 company compared to First Call’s 12-month price targets

Company Profiles• Antero Midstream Partners LP (AM) • Denbury Resources (DNR)

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The best way to play this sub-sector is to buy a basket of high quality small-caps. In the rebound phase of the last oil price cycle (2008 to 2010) several of our small-caps increased in price by more than 500%. I’ve done my best to find companies that are well positioned for production and proven reserve growth. Increasing production combined with increasing oil & gas prices is the recipe for exceptional gains.

Lonestar Resources (LONE) is now trading on NASDAQ. Frank Bracken, the company’s CEO is speaking at our Houston luncheon on Tuesday, July 26. Prior to moving to NASDAQ, Lonestar announced a 1 for 2 reverse stock split. This doubled my valuation per share to $23.60. Lonestar only has 7,521,788 shares of common stock outstanding. With such a small float, the trading volume is low and the share price movements can be quite large. Always use limit orders when buying or selling stock of companies with low trading volume.

On July 19, Sanchez Energy (SN) reported that their 2nd quarter

production averaged 55,900 barrels of oil equivalent (Boe) per day, which was 4,900 Boepd higher than my forecast. SN continues to report outstanding well results in the Eagle Ford Catarina project area. They also announced the sale of their 50% interest in Carnero Gathering, LLC, a

joint venture that is 50% owned by Targa Resources Corp. (TRGP) for approximately $44 million. SN has more than enough cash on hand to fund this year’s capital program.

Laredo Petroleum (LPI) sold 14,950,000 shares of common stock, which brought in over $150 million net proceeds, which are being used to pay for 9,200 net acres in the Midland Basin. The new leasehold fills in some blanks in their acreage position enabling the building of the Company's new Western Glasscock production corridor, developing the entire block with 10,000-foot or longer laterals and utilization of Laredo's Earth Model to optimize location selection and completion design.

Matador Resources (MTDR) is operating three rigs in the Delaware Basin where they continue to get outstanding horizontal well results. They completed and placed on production a total of 22 gross (17.2 net) wells in the Rustler Breaks and Wolf prospect areas during the second quarter of 2016, including 19 gross (16.4 net) operated and two gross (0.3 net) non-operated horizontal wells. Initial production rates on many of the wells completed in the second quarter are at or above the pre-drill type curves. This is

Company Name

Primary Product

Stock Symbol

Share Price

EPG Fair Value

Estimate

Percent Undervalued

7/22/16

CALLON PETROLEUM OIL CPE $11.29 $14.00 24.00%

EARTHSTONE ENERGY OIL ESTE $10.33 $18.35 77.64%

GASTAR EXPLORATION OIL GST $1.00 $1.20 20.00%

JONES ENERGY OIL JONE $3.79 $7.80 105.80%

LAREDO PETROLEUM OIL LPI $9.77 $14.65 49.95%

LONESTAR RESOURCES OIL LONE $11.05 $23.60 113.57%

MATADOR RESOURCES OIL MTDR $21.08 $25.00 18.60%

RING ENERGY OIL REI $8.09 $13.15 62.55%

RSP PERMIAN OIL RSPP $34.68 $44.00 26.87%

SANCHEZ ENERGY OIL SN $6.16 $13.25 115.10%

SYNERGY RESOURCES OIL SYRG $6.21 $10.00 61.03%

Small-Cap Growth Portfolio

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encouraging and should result in increased production guidance.

High Yield Income PortfolioOur Income Portfolio is focused on finding energy sector stocks and MLP units that offer high yield with a reasonable level of risk.

Three of our midstream MLPs (AM, MMP & MPLX) announced increases in their cash distributions to unit holders. All three of these midstream companies are primarily gathering, processing, transporting and storing natural gas and NGLs. If you listened to my weekend podcast you know that the outlook for these commodities has improved and the market continues to grow. All three are focused on growth and their distributions should continue to grow.

In August, I hope to find some time to take a hard look at Sanchez Production Partners LP (SPP). As you can tell by the name, it is aligned with Sanchez Energy (SN). SPP is a “hybrid” MLP with both upstream and midstream assets, most of which were acquired from SN. You

can find my initial forecast model for SPP on the EPG website under the MLP tab.

Updated forecast model for ONEOK Partners LP (OKS) and Plains All American Pipeline LP (PAA) have also been posted to the EPG website. Both should be able to maintain their current distributions, but PAA is exposed to declining U.S. crude oil production. I like ONEOK’s potential in Central Oklahoma’s SCOOP / STACK play.

Final ThoughtsI hope you are enjoying my weekly Oil & Gas Market Updates. These short podcasts are a new feature of your EPG membership. I am keeping them to around ten minutes in length because (a) we have a file size limitation and (b) I want to focus on a narrow topic each weekend. Plus, much longer and you may go to sleep.

Each week, I spend 40-50 hours watching the energy markets and trying to stay on top of what all of our model portfolio companies are doing. When they all start releasing quarterly results the information is coming at me like “water out of a fire hose”. One thing I do is copy charts and pictures that jump out at me, so I can use them in newsletters, profiles or just keep them for future reference.

Here are two slides that really caught my eye.

Slide 1 shows the dramatic drop in the number of rigs drilling for natural gas in the United States. For a country that now depends so much on gas fired power plants for electricity and where over 75% of homes heat with natural gas during the winter, it seems incredible to me that we now have less than 100 rigs actively drilling for natural gas. Keep in mind that most gas wells have higher decline rates than oil wells.

Primary Stock Share Estimated Annual

Company Name Product Symbol Price Annual Yield

Dividend

7/22/16

CALLON PETROLEUM COMPANY OIL CPE-PA $50.18 10.0% $5.00

EVOLUTION PETROLEUM - Pfd Series A OIL EPM-PA $26.34 8.1% $2.1250

MEMORIAL PRODUCTION PARTNERS MLP MEMP $1.59 7.5% $0.12

ANTERO MIDSTREAM PARTNER LP MLP AM $26.70 3.7% $1.00

MAGELLAN MIDSTREAM PARTNERS LP MLP MMP $73.57 4.5% $3.28

MPLX LP MLP MPLX $33.75 6.0% $2.04

ONEOK PARTNERS LP MLP OKS $41.86 7.5% $3.16

PLAINS ALL AMERICAN PIPELINE MLP PAA $29.01 9.7% $2.80

PLAINS GP HOLDING MLP PAGP $10.99 8.4% $0.924

High Yield Income Portfolio

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Slide 2 points out the seasonality of the natural gas market. Note that gas demand topped 100 Bcf per day last winter briefly even though we had a very mild winter. El Nino has faded and we are now expecting a normal to colder than normal winter in the eastern half of the United States. What happens if we have a very cold start to 2017 at the same time we have rapidly declining natural gas production?

Our goal is not to tell you what to invest in, but to give you a lot of good choices. Not all of the stocks we discuss in this newsletter or on the website are going to go up, but the majority of them have since 2001 when I launched EPG. If you stay focused on owning companies that have strong fundamentals and growth locked in, I believe you will have an edge in the market.

Thank you for your support.

Keep an eye on the macro-environment, but look closely at the details before you invest in anything and good luck!

Dan Steffens, PresidentEnergy Prospectus Group

© 2016 Energy Prospectus Group

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