Painted Pony: Making Sense Of The Guidance

Fellow contributor Dutchtender made me realize there is something wrong from the guidance of January 2017 and May 2017.

Painted Pony - January 2017 & May 2017 Guidance

Guidance2017 Production (boe/d), Liquids Pourcentage2018 Production (boe/d), Liquids Pourcentage2017 Leverage (YE Net Debt/CFO)2018 Leverage (YE Net Debt/CFO)
May 201748,400 (8%)84,800 (7%)1.51.2
January 201748,000 (10%)72,000 (11%)1.31.2
August 201646,00070,0001.91.4

Source: Corporate presentations

Something is going on. Leverage is increasing considerably despite AECO prices being somewhat stable and despite adding over 60 million new shares. More surprisingly, leverage fell from the August 2016 guidance to the January 2017 guidance, despite lower AECO prices. Let’s find out what is causing this.

Painted Pony - 2017 & 2017 Capital Expenditures

Guidance2017 Capex (C$M)2018 Capex (C$M)Total (C$M)Production Growth (boe/d)Efficiency (C$/boe/d)
May 201734830164961,60010,536
January 201731938570449,00014,367

Source: Corporate presentations

The company is more efficient. The additional leverage was not because of higher capital expenditures.

Painted Pony - Cash Flow From Operations

Guidance2017 CFO/Mcf (C$/Mcf)2018 CFO/Mcf (C$/Mcf)
May 20171.411.55
January 20171.621.85

Part of the problem is that less cash will go into Painted Pony’s coffers. The changes are staggering: cash flow per unit decreases 13% in 2017 and 16% in 2018.

Lastly, I think the biggest reason is the new way leverage is calculated in these presentations. In the recent presentations (January and May 2017), leverage is taken as year-end net debt to Q4 CFO annualized. Because Painted Pony’s production growth is achieved primarly at year-end, the cash flow is substantially higher in Q4 than the average in the rest of the year.

As such, the substantial increase in leverage is due to the way leverage is calculated, to 20% higher costs, and, to a lesser extent, slightly lower realized prices and slightly lower liquids production.

Disclosure: I am long PONY. Not for republication on Seeking Alpha.

Corridor Resources: The Numbers

Here is what happened since we know that Hydrocarbons Anticosti LP is negotiating with the government.

CDH StockCharts.com April 12

Source: StockCharts.com

Corridor’s stock went from C$0.42 to close at C$0.45/share at 5.5X average volume for total upside of C$2.7M.

PEA StockCharts.com April 12

Source: StockCharts.com

Petrolia’s stock went from C$0.14 to close at C$0.18/share at 7.0X average volume for total upside of C$4.3M.

These gains have evaporated since.

Disclosure: I am long CDH. Not for republication on Seeking Alpha.

Must-Read: Canadian Natural Gas Producers And The OPEC Deal

Alliance offers natural gas producers more access to the east as West Coast LNG prospects fadeFinancial Post

TransCanada’s natural gas pipeline deal with producers just saved the industry from losing US$25 billionFinancial Post

OPEC’s misleading narrative about world oil supplyBelfer Center

Saudis are right back where they startedBloomberg Gadfly

Not for republication on Seeking Alpha.

Portfolio Update: Adding To My Energy Holdings

Last Wednesday was a test for energy investors. Did you resist the urge of following the masses by selling your energy holdings?

I resisted. I added to my favorite energy holdings last Wednesday, which are Gear Energy (GXE), Point Loma Resources (PLX) and Raging River Exploration (RRX). Those companies can survive low oil prices and then thrive once oil prices rise.

Here are my recent moves in the market.

First, I sold all the lithium explorers I bought last month: Critical Elements (CRE), Nemaska Lithium (NMX) and Natan Resources (NRL), now Enforcer Gold (VEIN). I was lucky to turn out a profit on this: Critical Elements skyrocketed 50% after investors learned the company had hired a communication firm for a year.

This experience would be cash neutral at best if it wasn’t for this gain. Just for example: Enforcer Gold switched its focus to gold exploration after I bought the stock for its lithium properties. All in all, this is another point to not speculate on the market.

Second, I sold TransGlobe Energy (TGL). It turns out the Canadian assets aren’t as transformative as I thought they would be. I first estimated netbacks at C$11.50 per barrel for total consideration of 6X 2017 FFO. Instead, netbacks were as low as C$6 per barrel in Q4, which implies an estimated price tag of over 10X 2017 FFO.

The Cardium light oil acreage should provide interesting returns according to past presentations from Angle Energy. Management will drill these lands only in late 2017. Therefore it will take some time before shareholders see something good from these assets.

I sold what was left of my position in MEG Energy for a sub-50% gain. WTI at sub-$50 won’t be enough for MEG to sell its pipeline at a good price. Hence share price appreciation will be limited in the short-term.

I added massively to my positions in Point Loma Resources (PLX), Gear Energy (GXE) and Raging River Exploration (RRX) using these gains.

I bought back Tidewater Midstream and Infrastructure (TWM) on Friday after selling the stock two weeks ago. Support was limited below the 200-day moving average.

TWM StockCharts.com March 13

Low AECO prices in Western Canada may delay growth projects by producers and lower flows in pipelines owned by TWM in the short-term.

I am now heavily positioned in the oil and gas sector with a strong presence in junior Canadian E&Ps with low leverage and high netbacks. Those companies can survive at $50 WTI and thrive at higher prices.

Disclosure: I am long GXE, PLX, RRX, TWM. Not for republication on Seeking Alpha.

Must-Read: Saudi Arabia, US Crude Oil Exports And Heavy Oil

Exclusive: Saudi Arabia wants oil prices to rise to around $60 in 2017Reuters

US crude exports surge to a recordBloomberg Markets

U.S. gasoline demand hits record number last yearReuters

U.S. crude oil imports from Saudi Arabia and Iraq combined recently approached five-year high, but are expected to declineEIA

After OPEC cuts heavy oil, China teapot refiners pull US supply to AsiaReuters

Enbridge CEO downplays need for competing pipelines till at least 2025Financial Post

Not for republication on Seeking Alpha.