Painted Pony Petroleum

Painted Pony Petroleum Ltd. TSX-V:PPY.A and PPY.B


"Calgary, Alberta based junior oil and gas company. Completed initial public offering in May 2007 into a tax-loss company, started trading on TSX.V. Bought NE BC assets March 2008"


Market value(05.01.2009): C$49 million

P/E: 7

Production: YTD average 622 boe/d, September-08 production 1060 boe/d, Light Oil 49%, 51% Natural Gas+NGL+Condensate

Operating Costs: 9 months/08 C$8.29/boe(C$9.10)

Netbacks: 9M/08: $57.87($87.82 for crude oil and $24.68 for Gas&NGL) with WTI at C$111.7

Reserves: no official estimate yet. The company controls 80 net sections of Bakken-land. According to PPY there are 4 to 6 million bbl's OOIP per section. Petrobank estimates that there are 600 000 bbls of 3P reserves on every section, Tristar Oil & Gas's estimate for their Bakken-land is 500 000 per section. 80x500 000=40 million bbl's. The recovery factor used in the estimates of PB and TOG may be doubled through the use of water flooding and so there is significant potential upside.
In addition to the Bakken operations the company has 88 700 acres of potential shale gas land in NE British Columbia(see Montney) and 480 boe of daily natural gas production.

Total assets: C$100,933,521

Total debt: C$21,051,736 of current liabilities, no long term debt

"To date, Painted Pony has not undertaken any hedging or commodity price contracts."

"Painted Pony continues to develop its land base through drilling to earn land, freehold leasing and participation at crown land sales. By the end of October, 2008, the undeveloped land within Saskatchewan was over 51,000 net acres."

"At the end of September 2008, the Company had a positive working capital position of $21.3 million and nothing drawn on the two bank credit facilities totalling $22.0 million."

*"Directors and mgmt own 18% of current outstanding shares, based on votes"

Analysis or something resembling a one: The company has no net debt and is likely to have 40 to 100(through water flooding) million barrels of light of oil(>41 API) in reserves. The flow rates in the Bakken are very slow: on average 50-200 bbl's per day per well. The Saskatchewan Bakken oil is commercially viable with the price of oil at 40 dollars per barrel according to Crescent Point Energy Trust(which is the biggest operator in the Canadian Bakken). If the company earns merely 2 dollars per barrel from the oil produced from Saskatchewan and one uses the 40 million barrel estimate for the recoverable oil reserves, the net value for the Bakken assets would be 80 million dollars, which is 60% higher than the current market value. This estimate assumes no value for the BC operations, which are already producing natural gas and generating cashflow. I would estimate that with WTI at $60(long term average?) and recoverable reserves of 40 million bbl's there is potential upside of >600% in the share price.
Access to funding at the moment is difficult for most companies and damn near impossible to oil & gas and mining juniors. PPY's financial situation is adequate, as it had in the end of 3rd quarter a positive working capital of 21 million, undrawn credit lines worth of 22 million and cashflow generating assets. PPY should be able to maintain and even increase it's production in the near future without new capital.