Painted Pony: The Capital Lease

It all started with this:

In addition, the Company has completed an engineering study with a third party midstream company to build a natural gas processing facility, including refrigeration and associated liquids handling, at the Townsend 33-J pad with an expected capacity of approximately 190 MMcf/d. This new plant is anticipated to commence operations in late 2015 pending execution of final agreements, and is expected to reduce transportation, processing, and operating costs, and increase liquids production.

Painted Pony Energy Press Release, August 13, 2014

In other words, Painted Pony will be paying fat fees to AltaGas for a long time.

Fast forward to today, and the capital lease expense will amount to C$60M in 2018, or C$0.59 for each Mcf from Townsend (commitment of 267 MMcf/d starting January 1, 2018).

It’s not all bad. AltaGas spent C$440M to build the facility. Using debt, this would translate to C$35M of interests per year from the financing rate of last August. Plus the additional leverage, which would have been unworkable in the current natural gas environment.

Painted Pony gained access to a new processing plant without adding debt, while sacrificing some of its netback from the associated production. The charge of C$0.59 per Mcf from Townsend is significant.

LNG being so far down the road, the upside from this partnership in the medium-term is the marketing of NGLs by AltaGas. Painted Pony will be able to export propane to Asia as soon as Q1 2019.

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

TransGlobe Energy: I Bought Some

Added a small position this morning.

What I’ll be looking for in the coming months:

  • Funds flow from operations, meaning healthy heavy oil discount (management expectation: $10 per barrel).
  • Performance of the Canadian asset (management expectation: very bullish).
  • Egyptian oil production (management expectation: increasing production with the new drilling crew).

Some more info to look out for:

TGL November Presentation November 9

Source: TransGlobe Energy, November 2017 Corporate Presentation

I now have skin in the game.

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

Razor Energy: Light Oil Value

Meet the newest member of my portfolio: Razor Energy.

Source: TMX Money

Razor produces light oil and NGLs through the Swan Hills Platform and additional liquids from the Kaybob South area. The company acquired the Swan Hills assets from Penn West Petroleum in 2016. The Kaybob South assets were purchased in 2017.


The Swan Hills reservoir has been producing oil since 1962. Here is what the ownership of Swan Hills looked like in 2011.

Source: A&D Drill Bits, BMO Capital Markets, 2011

Since then, operators have changed: There has been a lot of activity surrounding the company’s core assets in the recent past.

Source: Razor Energy, November 2017 Corporate Presentation

Cardinal Energy bought assets in September 2015 and then again in September 2017. Pengrowth Energy acquired those assets in April and September 2017. Crescent Point Energy was active in consolidating the whole area in June 2015. All those lands are adjacent to those of Razor, and part of both the Swan Hills Platform (located East of Swan Hills) and the Virginia Hills Units.

Already, back in 2015, Crescent Point noted there was a lot of upside in oil exploration using newer technologies in the area.

The Coral Hill Assets are large oil-in-place pools with low recovery factors to date and are in the early stages of horizontal development.

Scott Saxberg, CEO of Crescent Point Energy, July 2, 2015

Razor also plans to drill horizontal wells between the two Virginia Hills Units. The newer wells are shown in the red square below.

Source: Razor Energy, November 2017 Corporate Presentation

In detail:

Source: Razor Energy, November 2017 Corporate Presentation

Horizontal wells are shown as red lines in the image above. Wells are expensive (C$4M per well). One well was drilled in October 10 and two other wells are licensed as of now.

The Kaybob South assets are another area of focus for the company.

Source: Razor Energy, November 2017 Corporate Presentation

Returns are higher in this area particularly because of lower drilling costs. Razor acquired those assets in May 2017. Drilling is planned for 2018.


(C$/boe)Q2 2017Q3 2017
Other revenue4.323.29
Operating costs29.1130.86

Source: Razor Energy, 2017 Financial Statements, 2017 MD&A

Price realization is very good because of the type of oil sold. Depletion and depreciation is low. Give credit to the attractive price paid and the low production decline of those assets.

The only drawback is the very high operating costs, at almost C$30 per barrel. Even though management has made this a priority, operating costs can’t be reduced substantially. Management is targeting operating costs of C$27.50 per barrel.

Razor owns midstream assets which provided extra cash. This is identified as “Other revenue”.

Funds flow from operations were of C$0.09 and C$0.04 per share in Q2 and Q3, respectively (C$0.13 and C$0.10 per share excluding decommissioning obligations).

Funds flow from operations were lower in Q3 because of lower Canadian oil prices, mainly because of a strong Canadian dollar. This affected revenues to the amount of C$1.1M in Q3. Total funds flow from operations in Q3 would have totaled C$2.7M (C$0.18 per share) in Q3, 60% higher than in Q2. Funds flow from operations should rebound strongly in Q4, considering the lower Canadian dollar and stronger WTI oil prices.

In addition:

Included in the capital budget is $2.0 million to address the Alberta Energy Regulator’s requirements under the Inactive Well Compliance Program, and other end of life well and facility spending. The company spent $918 thousand in the third quarter of 2017 on asset abandonment activities for a total of $1.7 million year to date.

Razor Energy Press Release, November 23, 2017

As such, only C$0.3M in decommissioning obligations will be spent in Q4. Total capital expenditures should be similar than in Q3, at C$4.8M.

The higher cash flows from operations explain the aggressive NCIB by management. Razor already started to buy back shares of the company (more than 165,000 shares as of today). There are 15.8 million shares outstanding.


Negative: The company is in debt. The company has a C$30M term loan from AIMCo, bearing interests of 10% per year. Net debt stands at C$17M. The debt load is high considering funds flow from operations of C$1.3M and C$0.7M in Q2 and Q3. At the very least, funds flow from operations are already positive, even with low WTI oil prices ($48 in Q2 and Q3).

  • Insider ownership is good: Management and directors collectively own 22% of the company.
  • The light oil and NGLs production mix help mitigate Razor’s high costs.
  • The NCIB should give some volume to the stock and provide a floor for investors.

Insider buying has been very intense lately.

Source: Canadian Insider

I bought two weeks ago.

On another note: Purple is the new trendy color in oil and gas (see Obsidian Energy).

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

The Stars Group: What Now?

So I reduce my position, and then…


The weekly isn’t better for me.

TSGI Weekly December 3


I’ll still be patient before buying back shares. Let’s see what happens at C$30.

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

Granite Oil: Still Bullish

Temporary operational setbacks have sent the stock to the cave.

Tighter well spacing wasn’t optimal after all.

In 2017, the Company tested further down‐spacing, with infill drilling on 100 and 133 meter intervals (see May 9, 2017 press release). These wells initially tested at rates comparable to wells drilled on 200  meter spacing, and while economic, have proved to be less productive over time.

Granite Oil Press Release, November 9, 2017

Well spacing will be 200 meters from now on.

Despite these setbacks, Granite is still one of my favorite oil stocks.

  • The company will spend over C$10M in growth capital in 2018. This will grow production 600 barrels per day year-over-year.
  • Cash netbacks are high.
  • The dividend is safe at current WTI prices.
  • Some of the decrease in production is due to conversion of producing wells to gas injectors.

Plus there are still 80 drilling opportunities to further grow production and oil recovery. The next area of focus is delimited in purple, with approximately 10 drilling locations

Drilling Development GXO December 03

Source: Granite Oil, December 2017 Corporate Presentation

I added to my position on November 15, 2017.

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

Granite Oil: I Should Stop

The next resistance level is at C$4 per share.

Cadotte Capital Partners, November 7, 2017.


GXO November 13


GXO November 13


Yeah, I should stop. But it’s still a great time to buy the stock. For better or worse, management is keeping the dividend. Warning: The dividend will be cut should oil drops below $50 again.

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

Corridor Resources: CSEM Survey Almost Underway

Electromagnetic Geoservices ASA and its wholly owned subsidiary Electromagnetic Geoservices Canada Inc. (together, “EMGS”) have initiated preparations for carrying out a pre-funded multi-client survey west of Newfoundland, Canada. The survey represents a minimum level of revenues to EMGS of approx. USD 2.5 million.

The survey is expected to be executed in the fourth quarter of 2017.

EMGS Press Release, October 17, 2017

Corridor hired EMGS, from Norway, to do the study. The work amounts to C$3.3M, as disclosed previously by Corridor.

The study is almost underway. The vessel Atlantic Guardian is sailing to the Old Harry site. The vessel crossed the Atlantic earlier in October. It was moored of St-John’s until last week when it sailed to the Gulf of St-Lawrence. It is now off the coast of Nova Scotia, near Cape North.

Atlantic Guardian Location November 11


There were many studies realized throughout the years in the Western Newfoundland and Labrador Region (Petro-Canada, Mobil Oil, Marathon Petroleum, Talisman Energy, BHP Petroleum, etc). Petro-Canada wasn’t far from the underground structure in 1981.

Petro-Canada Survey 1981 November 11

Source: C-NLOPB

Corridor has done a very similar study in 1998.

Corridor Resources Survey 1998 November 11

Source: C-NLOPB

The focus was on the Western structure of Old Harry, in Quebec’s territory. This time, Corridor will focus on the Eastern structure.

Corridor has now C$47M in working capital, or C$0.53 per share. I am still holding a reduced position in Corridor since Value Digger’s article on August 3.

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