4) Peers: Advantage Oil & Gas Ltd. (TSE:AAV) has also exposure to Montney holding 80 net sections and produces 16,000 boepd (100% gas). After the latest disposition, Advantage’s EV is $690 million currently, the production is 16,000 boepd and 2P Reserves are 165 MMboe (December 2011). Thus, it trades for $43,000/boepd and $4.18/boe.
5) Montney Transactions: ExxonMobil acquired Celtic recently. Excluding the part of Celtic that wasn’t sold to Exxon, Exxon paid $2,92 billion for 26,600 boepd (2012 exit production) that were gas weighted (75% gas). Thus, Exxon paid $109,700/boepd (75% gas) to buy Celtic with 867 net sections in the Montney play.
Crew Energy Inc (TSE:CR)
paid recently only $22 million to Terra Energy for 56 net sections of liquids rich Montney rights that were producing 52 boepd. Obviously Exxon was generous but few other companies have equally deep pockets.
Painted Pony owns 187 net sections on the Montney play. Most of this acreage is undeveloped. Assuming that 120 net sections are undeveloped, their value can’t be more than $50 million. This estimate is supported by the fact that Crew has retained an option to purchase from Terra Energy an additional 140 sections of Montney land, total proved reserves of 1,850 mboe and 2P reserves of 9,970 mboe for $56 million on the option lands.
The Speculative Approach
1) Buyout: If the company’s buyout was a baby, it would be three years old today. The takeover rumor emerged in 2009 for the first time, based on the company’s Montney acreage. However, a potential buyer has to know that Painted Pony is far from owning the largest Montney position. There are almost 20 companies with significant Montney exposure, whose acreage is also well-situated on the Canadian map. This is why any acquisition scenario due to the company’s Montney rights is highly speculative.
2) LNG Project: The CEO of the company has been touting the West Coast LNG project for long. Some analysts have been also following this strategy for more than one year. The company’s presentation is also centered on this speculation noting that it is “Positioned to be a leading supplier of gas to Canada’s West Coast LNG projects”.
Painted Pony wasn’t selected as a supplier for this highly touted project finally. However, the shareholders are free to keep living their myth with this company, aren’t they?
It is also worth mentioning that the earliest start-up of the first LNG project is estimated to occur by the end of 2015 although the delays are likely due to the nature of these projects. At best, the first results on a supplier’s balance sheet will show up in 2016.
Conclusion
If I buy Painted Pony at $9.50, I take a huge risk to lose a big part of my capital. As a fundamentally-driven investor, I steer clear of this company looking elsewhere for undervalued stocks.
The article Is Painted Pony Petroleum A Painted Bubble Filled With Natural Gas? originally appeared on Fool.com and is written by Nathan Kirykos.
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