Painted Pony (PONY.TO) remains on the right track with regards to the operational part of its business as the flow results of the very first horizontal well drilled at the Beg block has definitely lived up to the expectations. During the final 8 hours of a 6.6 day test period, Painted Pony’s well has produced in excess of 2,000 barrels of oil-equivalent per day of which in excess of 80% was natural gas. The liquids contributed approximately 360 barrels per day and consisted of condensate and NGL’s in a 60/40 ratio.
Considering this was Painted Pony’s first well on this block, these initial test results are very encouraging (and according to Painted Pony ‘significantly above management expectations’), and it looks like this Beg block will receive more attention in the upcoming drill programs. These type of wells aren’t very easy to drill (this particular well was drilled until it reached a depth of 1,800 meters and extended laterally over almost 2,300 meters) and the Beg block isn’t connected to Painted Pony’s existing infrastructure by a pipeline, but another few of these wells, and PONY won’t hesitate to put the necessary infrastructure in.
Despite the company’s abysmal share price performance in the past few years (which accelerated after completing a large acquisition last year which was not appreciated by its shareholders), the company remains one of the better gas plays out there. It’s just a pity British Columbia and Canada couldn’t get their acts together and completely missed out on the LNG train leaving the station. Other countries like the USA and Australia acted faster and are now able to ship their gas as LNG to the Asian regions where the prices are much higher.
Unfortunately the company’s Q1 results remained uninspiring. Painted Pony reported an operating cash flow of C$51.6M but after deducting the working capital changes and the C$10.7M hedge income, the normalized operating cash flow was just C$36M. That’s definitely an improvement compared to the C$28M in Q1 2017, but it’s clear Painted Poney either had to curb spending or raise more money to continue its exploration and development program. It elected to spend less: the FY 2018 capex guidance was cut from C$185M to C$145-165M, and it’s not unlikely Painted Pony will be able to cover this budget with its internally generated cash flow.
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The author has a long position in Painted Pony. Please read the disclaimer
