Painted Pony Energy

PONY-T

We need an LNG announcement in the coming year to get gas out of western Canada. The debt is creeping up as they don’t get the gas they forecast out of Canada.

The mix is very good. $6.30 is the book value. The balance sheet is good. It is trading at a third of book value. People think the company won’t survive but he disagrees. This is trading at survival value. They have hedges on the gas price. He likes what he is seeing. He is looking into it seriously.

The big question is, when will we get LNG on the West Coast of Canada. This was started to be talked about around 11-12 years ago, and we still don't have anything as a final investment decision. Most demand for natural gas is in the lower part of the US. We are exporting it to Mexico. There is lots of gas in Pennsylvania and Ohio that is being sucked down there first, and what is left is the stranded gas which was left in Canada. Expects that sometime in 2018, Shell goes ahead with this project, which will get the Canadian gas stocks finally moving. This is still 5 years away. Very speculative.

The trouble with this company and the whole gas complex is that the outlook for Canadian gas is absolutely horrible. 2018 strip price for Canada is $1.25, which is down 8%. Typically, these names rally in the winter, but the winter trade is over. You have normalized weather returning next week. There is just too much gas production in Canada relative to the take away capacity. This is going to be a minimum two-year problem out to the 2nd half of 2019.

Gas prices in Canada has been decimated. This one has really done nothing for the last few years. Feels that a lot of the bad news is already in the stock. If you own, he wouldn't rush out to sell it, but wouldn't be buying any more at this time. They’re fairly good operators and there should be some growth, it's just that the underlying commodity is so weak that it is difficult for them. Also, there has been more pressure on because of tax loss reasons.

Their volumes are going up. They have a hedging program. He does not think it is a bad balance sheet. He thinks it is very cheap after being beat up with tax loss selling. He is meeting with Management in January.

From an operational point of view, this is a decent company. They have decent assets. However, there is a very high debt level, which is probably the main reason why it has been getting destroyed on the stock market. For investors in a struggling sector, this is just not what they want. He wouldn't recommend this because of the debt. He would rather make less money on less risk on something else.

Among the junior intermediates, this is a well-managed company. At these levels, this has caught his attention. They run a very good operation, and tend to have a fairly good discipline on their capital deployment. This is one he would be looking at to add in the near future.

(Top Pick Sep 19/16, Down 60%) It has really fallen. He owns it because it is the third largest Nat Gas reserve of the publicly traded companies. It is one of the fastest growing Nat Gas companies. This year they did an acquisition that was medium to long term accretive. Then their bank line was pushed and they issued debt. Now Nat Gas has fallen in half. We need improvement in Nat Gas pricing through exports.

This is clearly in a downward trend. That is not unusual. Most of the Canadian energy stocks have been in that trend for the last while. There is good reason to believe that the company, mainly a gas producer, is going to show signs of bottoming. The stock has support just below current levels. Other gassy stocks, during the last couple of weeks, has started to form some base building patterns. He would like to see this perform a technical pattern before recommending it. Put it on your radar list, because historically these kinds of stocks do well at this time of year.

Hasn’t held this for about 2 years. If bullish on Canadian gas, this is not a bad name. They’ve suffered from an equity issuance they did earlier this year, where they diluted the shareholder base by about 58%. That was to get more drilling depth acreage, more contiguous where they can draw longer laterals. Trading inexpensively relative to its inventory depth, but there is a lack of a lot of pipeline, and thinks it will continue to sell at a disconnect. There are better names in the US.

A couple of years downtrend broke, which is a good thing.Then we took out the last low so it is officially in a down trend.

Production metrics fell off but the management team are always looking further out. Short term they are negative, but positive long term.

When companies tell us they have great assets, and then go out and buy something else, he wonders why they have to do that. The company is in the penalty box.

Did an acquisition which really ticked off a lot of investors diluting the share count by about 50%. The attraction of the company was that they had very good well results and very, very deep inventory. Management has had a tough time selling this. You just have to wait for this to clear. It screens very well on a valuation relative to growth rate. Extremely inexpensive relative to the growth rate and the running room they have now acquired.