This Canadian energy stock saw its production and cash flow jump in the most recent quarter.
The company has many drilling locations in one of the richest shale gas areas in North America, and added to its assets with a 2017 acquisition. It has scaled back exploration while natural gas prices are low, but is poised to do well when the price of gas recovers.
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PAINTED PONY ENERGY (symbol PONY on Toronto; www.paintedpony.ca) primarily explores for and produces natural gas in B.C. It is focused on the Montney formation in the northeastern part of the province, one of the two major shale gas areas in North America, along with the Marcellus formation in the northeastern U.S. About 91% of the company’s output is gas. The remaining 9% is natural gas liquids.
The company’s production rose 69.2% in the three months ended March 31, 2018, to 60,703 barrels of oil equivalent per day from 35,878 a year earlier.
Cash flow jumped 87.1%, to $46.4 million from $24.8 million. The higher production offset 17.1% lower gas prices. However, cash flow per share rose just 16.0%, to $0.29 from $0.25, due to 60.7% more shares outstanding.
The sharp increase in the number of shares stems from the company’s May 2017 acquisition of privately held UGR Blair Creek Ltd. for $276 million. That added production, infrastructure and land holdings to Painted Pony’s properties in northeast B.C.
Energy stocks: Shares trading at a very low multiple to future cash flow
The company’s long-term debt is $350.7 million, or a very high 94% of its currently depressed market cap of $373.5 million.
Painted Pony recently cut its planned 2018 exploration and development spending from $185 million to a range of $145 million to $165 million. That’s because natural gas prices remain low.
The stock trades at just 2.6 times the company’s forecast 2018 cash flow of $0.89 a share. Like all natural gas producers, Painted Pony will need gas prices to move higher to continue reporting improved cash flow—and to pay down its debt. Meanwhile, it has lots of drilling locations in high-yielding areas that should do well when prices recover.
TSI Network recommendation: Painted Pony Energy is okay to hold for aggressive investors.
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