Everybody loves Painted Pony (but especially Bill Bonner)
Also: fourth quarter results from Encana, Cenovus and Precision Drilling
When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at firstname.lastname@example.org
by Max Fawcett
It doesn’t show up in the share price, but Painted Pony Petroleum (TSE:PPY) might be one of the most beloved stocks among Canadian energy analysts. Yesterday, Brickburn Asset Management’s Bill Bonner was on BNN’s Market Call, and he pounded the table – again – on behalf of the gas-weighted junior. “Painted Pony had some great operating success, but kind of fell from grace because it wasn’t a target. Well, time has passed, and operations in the company have only gotten better.”
It has 48 wells in its Montney acreage, along with some oil production in the Saskatchewan Bakken. But it’s the Montney that should excite investors, Bonner says. “When you look at the acreage that Painted Pony has, you’ll see that it’s in an interesting spot – it’s on the royalty-reduced free zone. They get a bigger credit for drilling these deep wells than they would if they were further to the south. And when you look at the inventory they have on their own land you can get very excited – there’s something on the order of 1,800 wells that could be drilled on their Montney land spread.”
What does that add up to in terms of upside from its current price? A double, according to Bonner. “We see a $14 or $15 price on this thing with a little bit of further LNG development. The closer we get to the LNG story becoming areality, the stronger this stock will become.” He also liked Rock Energy (TSE:RE) and Madalena Energy (TSXV:MVN).
Meanwhile, Encana (TSE:ECA) and Cenovus (TSE:CVE), the oil-weighted portion of its business that it spun off in 2009, both reported their fourth quarter results today. Cenovus’s results were mostly much ado about nothing – a 10 per cent hike in the dividend, to be fair – but Encana’s were more interesting. As BNN’s Jameson Berkow noted in a post from this morning, “Natural gas remains the company’s raison d’être, though Canaccord Genuity is taking issue with management’s playing-it-safe hedging strategy. Encana now has 2.1 billion cubic feet per day (about 80 per cent of its total 2014 gas production from 57 per cent previously) hedged at $4.17 per million cubic foot, which analyst Phil Skolnick warns is ‘removing its torque to any further strength in gas prices.’” But here’s an interesting wrinkle: if you want to learn more about the results and what new(ish) CEO Doug Suttles thinks they mean, you can find him talking about it on YouTube.
Finally, Precision Drilling (TSE:PD) hit it out of the park in its fourth quarter results, and while some of that is due to the widening spread between the Canadian and U.S. dollars it also reflects improving internal margins. “EBITDAS of $202 million was materially higher than our estimate of $172 million and the street estimate of $174 million,” FirstEnergy’s Kevin Lo wrote. “The strength was due to higher day rates in Canada, and higher margins corporately. The outlook is also strong, with already strong utilization in 1Q14 and potential opportunities in Mexico.”