And this was not a rich deal\u2014the land price of $5,319 per acre is in line with previous deals this year.<\/p>\n
They sold a 75% working interest in 11,280 acres of Montney land for $45 million to an un-named buyer (after the deal closes we will find out who it was).<\/p>\n
Like I said, this was a very small percentage of the overall land package that Painted Pony owns \u2013 about 4% of the total.<\/p>\n
The market capitalization of Painted Pony is ~$95 million.<\/p>\n
That means this 4% sale represents nearly 50%<\/span><\/em> of the company\u2019s market capitalization!\u00a0 If you apply that value per acre across even half of PONY’s lands, it would infer that the stock should be 40% higher.<\/p>\n After the sale, Painted Pony has just a hair under 187,000 net acres of Montney prospects remaining.<\/p>\n Source: Painted Pony October Presentation<\/em><\/p>\n Of course, the company has debt.<\/p>\n Total debt is around $375 million pre-sale.\u00a0 The sale helps reduce this amount by 12%.<\/p>\n After the sale Painted Pony has an Enterprise Value (EV) of about $425 million ($95 million capitalization + $375 million of debt – $45 million sale proceeds).<\/p>\n Applying the $5,300\/acre metric to the entire acreage position would yield a $980 million valuation.\u00a0 That works out to $650 million or $4 per share for the equity.<\/p>\n But<\/i><\/strong>–the Market doesn\u2019t value all acreage equally.\u00a0 Acreage with liquids (ethane, propane, condensate<\/span> etc) is higher value than dry gas (methane).<\/p>\n While Painted Pony has not disclosed much about the sale, we do know that the acreage had no production or reserves associated with it.\u00a0 This narrows the possibilities and makes it likely that the sale is in the Beg or Jedney areas.<\/p>\n These are liquid-rich lands.<\/p>\n To the south, the company has said that Townsend has ~45 bbl\/MMcf<\/span>, while Blair has 15 bbl\/MMcf<\/span>.\u00a0 Daiber is dry gas.\u00a0 Overall, Painted Pony estimates that 50% of their acreage is liquids-rich.<\/p>\n So let\u2019s just consider the liquids-rich land that Painted Pony owns.\u00a0 Applying a $5,300\/acre valuation to the ~50%, or 93,000 acres of liquids-rich land that Painted Pony has \u2013 gives a value to that liquids land of $493 million.<\/p>\n That translates to an equity value of $1 per share.<\/p>\n In other words, even if I give ZERO value for the more than 90,000 acres of dry gas acres that Painted Pony has, the share price should be 40% higher based on this transaction.<\/p>\n Using $1.50 per mcf<\/span> AECO pricing and estimates from RBC, Painted Pony trades at 1x P\/CF and 3.8x EV\/DACF.<\/p>\n That doesn\u2019t make it sound so cheap.\u00a0 That just tells the Market that these stocks are asset rich but cash flow poor; the industry is willing to pay for good lands but investors are not. I can tell you that pretty much ALL oil and gas producers are trading roughly 4x cash flow, or 4x EBITDA<\/span>\/Enterprise Value, or EV.<\/p>\n But based on land values, PONY is REALLY cheap.<\/p>\n It\u2019s not just Painted Pony.\u00a0 The entire Canadian gas universe at these levels.\u00a0 Consider these estimates published by RBC this week:<\/p>\n All these estimates are done at AECO\u00a0(the main Canadian natgas hub) prices of $1.50 per mcf<\/span> for 2019 \u2013 so extremely<\/em> depressed pricing. Yet as Canada’s Financial Post newspaper pointed out yesterday, AECO prices have actually been on the rise<\/em>.<\/p>\n![\"1\"](\"http:\/\/oilandgas-investments.com\/wp-content\/uploads\/2011\/08\/11.jpg\")
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