Painted Pony – Update/ NR

Painted Pony Petroleum (PPY-TSE)

Proving out the plan, on route to 20,500 boe/d in 2015 Investment highlights:

Painted Pony released Q1 results yesterday that were largely in line with expectations. More importantly the release contained a positive operational update that left us with three key takeaways:
1. The recent step change in Montney well rates
resulting from a switch in completion methods
is not only continuing, it appears to be getting
even better.
2. PPY appears well on pace to reach its 2015
production target of 20,500 boe/d in 2015
(annual average), in our view. This represents
an increase in production per share of ~55%
this year and another ~55% per share in 2015.
3. On our updated numbers PPY is no longer
expensive on cash flow multiples; in fact, it is
trading at a discount to its peers, despite the
growth profile, and extensive running room in
the Montney. Historically PPY has traded at
~15x EV/DACF, but on our increased
estimates it is now trading at just 6.5x 2015E
EV/DACF versus its gas weighted peers at
In our view, the above highlights are significant developments for Painted Pony. Despite the strength in PPY’s share price in recent months, we believe the stock is poised to move
significantly higher, as the company continues to execute on its aggressive growth plan. Painted Pony remains our  favorite pick in the natural gas space.

Penn Virginia Corporation

PVA : NYSE : US$14.76

Target: US$20.00

Investment recommendation
PVA has been successfully transitioning to a liquids-focused company
while retaining its leverage to an improvement in natural gas prices.
The company has built a sizeable ~86K net acre position in the volatile
oil window of the Eagle Ford (EF) and has generated solid results with
the drillbit while bringing costs down at the same time. We would be
buyers, especially after yesterday’s sell off.
Investment highlights
 In the EF, the company completed 16 (12.9 net) operated wells and
two (0.9 net) non-operated wells. EF production was 15.2 MBoe/d in
Q1, up 15% Q/Q, despite many completions coming later than
expected. PVA also increased its EF acreage to 85.9K, up 6.4K net
acres from last quarter and acquired at an attractive ~$3,000/acre.
 The Upper EF test yielded very solid results. The Welhausen #A2H,
drilled with a ~6,000 foot lateral and 26 frac stages, came on at a
peak gross IP rate of 2,165 Boe/d. Notably, this rate was higher
than the 1,767 Boe/d Devon posted in its presentation last week
which was based on 18 frac stages.
 PVA raised its EF inventory by 34% as it now includes the Upper EF
as a distinct horizon (475 gross locations). This increased inventory
figure is before giving any credit to overlapping locations, which the
company believes could add up to 400 additional locations. We are
now assigning value to the Upper EF in our NAV model, but we
believe there is still more upside as the bench is further de-risked.
Our new $20 price target represents a 10% discount applied to a
~$22.20 NAV. Our prior $19 target reflected the same discount to a $21 NAV

Magnum Hunter Resources

MHR : NYSE : US$7.34
Target: US$10.00


Magnum Hunter Resources is an oil-leveraged
independent oil and gas company, engaged in low-risk
development and exploration in the Williston Basin and
Appalachian Basin (Marcellus and Utica Shales).


Investment recommendation
MHR has built solid asset bases in the Marcellus and Utica Shales as
well as the Williston Basin (WB). We believe a renewed focus on the drill
bit and deleveraging the balance sheet (with further asset sales) should
continue to act as positive catalysts for the stock going forward.
Investment highlights
 Growth continues to be driven by the Marcellus and Utica. The
company expects to bring on a third rig here in the near future, and
wells targeted to be brought online between now and YE 2014 are
expected to add ~31 MBoe/d in net production; this is greater than
the company’s entire output from continuing operations in Q1/14.
MHR remains comfortable with its 2014 production exit rate
guidance of 32.5 MBoe/d from continuing operations.
 MHR continues to build up the value of its Eureka Hunter
midstream business. As of April 2014, the Eureka Hunter’s
gathering flow through recently hit a peak rate of 236 MMcf/d. With
the completion of expansion projects currently under construction,
the company expects that Eureka Hunter will have a throughput
capacity of 1.2 Bcf/d by YE 2014.
 The company has done a good job enhancing its liquidity. As of May
6, 2014, MHR had total liquidity of ~$131.2M. To further enhance
its liquidity, the company is pursuing additional non-core asset
sales. It expects to close such potential sales throughout the
remainder of 2014. MHR has already sold its Canadian WB assets
for US$68M, which is expected to close this week.
Our $10 price target represents a 20% discount to a ~$12.50 NAV

Talisman and Painted Pony – updates

Eagle Ford on the horizon?

Look at that trading range with an $11 base and
$13 ceiling. What’s the catalyst to take it
beyond that $13? Carl Icahn & American

Call it a comeback? Shares of TLM jumped after
the company posted strong Q1/14 earnings, driven
by higher North American gas and liquids prices,
increased liquids volumes and a gain on the sale of
assets. Additionally, Q1/14 production of 384
MBOE/d (includes assets held for sale) was also
above expectations. The EPS beat Skolnick’s (CG)
estimate was a result of better-than-expected
production as well as lower-than-forecast royalties
and unit op-costs. Having reached the lower end of
the prior US$2-3 billion in targeted divestments
faster than the expected 18 month timeline,
management remains confident in hitting its next
US$2 billion target. Furthermore, according to a
Bloomberg article, both TLM and its 50% JV
partner, Statoil (STO), are considering selling
their joint venture in the Eagle Ford, which
could fetch more than US$4 billion total


Shares of Painted Pony Petroleum are down from their $12.14 highs of last month. PPY reports Q1/14 results on Tuesday, May 13 (after market close). Canaccord Genuity Energy Analyst Anthony Petrucci is expecting a positive operational update, including robust production numbers, further color on improved completion techniques and likely an increased bank line. This is a company that expects to increase production by 50% per share this year and another 60% per share next year. Recent production numbers suggest they are ahead of their forecast pace. The company’s five-year plan has them reaching 100,000 boe/d in 2018 (current production of ~13,500 boe/d). They could potentially reach that level just by drilling
on existing drilling pads, and would only have drilled <15% of potential drilling locations.

Given the company’s forecast production next year of 20,500 boe/d, Petrucci says PPY is now trading at just 5.7x 2015 EV/DACF.

Recent well performance is well ahead of type curve (~30% better) given an adjustment
in completion techniques. The biggest risk to PPY’s model is natural gas prices, as the geological risk has been significantly reduced given the extensive delineation drilling the company undertook prior to its development drilling program. If natural gas prices hold in Petrucci believes PPY will be successful in reaching its lofty production targets.


Trading Alert WRES

Added to positions

- Jack A. Bass Managed Accounts



Below Average
As of 22 Apr 2014 at 10:28 AM EDT.


Open 5.22 P/E Ratio (TTM) 12.4x
Last Bid/Size 5.25 / 16 EPS (TTM) 0.42
Last Ask/Size 5.26 / 2 Next Earnings 5 May 2014
Previous Close 5.19 Beta 2.31
Volume 108,870 Last Dividend
Average Volume 871,471 Dividend Yield 0.00%
Day High 5.27 Ex-Dividend Date
Day Low 5.13 Shares Outstanding 73.1M
52 Week High 5.44 # of Floating Shares 69.65162M
52 Week Low 2.46 Short Interest as % of Float 2.00%

Quicksilver Alarm Bells

My  recent column suggested watch and wait . a number of readers replied they were committed and certain .

I am watching and the market has yet to bless KWK .

Here is an extract from a Seeking Alpha article warning that Quicksilver and Forest Oil face such pressures that bankruptcy may be in the future.

  • The high natural gas price has trapped both companies which have loaded their balance sheets with a lot of debt.
  • Both companies have tried to deleverage their balance sheets over the last 12 months.
  • They still have a long way to go in order to strengthen their weak balance sheets.
  • A bankruptcy is not out of the question.

Valuation Results

Both Quicksilver and Forest have a lot of work to do on the debt front. Those investors who ignore the debt hurdle or try to put it aside, are making a huge mistake. In fact, both companies carry scary debt to CF ratios that threaten their survival, considering also the fact that the natural gas price is inflated currently and will not stay at the current levels of $4.5/MMbtu for long.

Moody’s Shale Gas – Sector Review

eeking Alpha via 

11:52 AM (7 minutes ago)

to me
 as reported by Seeking Alpha April 1
not great review for Quicksilver

Moody’s: Marcellus shale gas producers to benefit most • 2:51 PM

  • Marcellus shale gas producers will benefit more than producers elsewhere in the U.S. because of several favorable circumstances, even if prices were to decline to 2012 levels, according to a Moody’s report.
  • Anadarko Petroleum (APC), Southwestern Energy (SWN) and Chesapeake Energy (CHK) – all of which entered the play early during a weak natural gas price environment – especially have benefited, Moody’s says.
  • An infrastructural overhaul is still needed as buyers move away from traditional production hubs such as the Haynesville and Barnett, the credit rating agency says; the transition already has caused a decline in credit quality for Exco Resources (XCO), Forest Oil (FST) and Quicksilver Resources (KWK).

Pine Cliff Energy Ltd. BUY

PNE : TSX-V : C$1.42

Target: C$2.25

Pine Cliff Energy Ltd. is a junior oil and gas producer
focused on dry natural gas, with assets in Alberta. Pine
Cliff trades on the TSX Venture under the symbol “PNE”.

All amounts in C$ unless otherwise noted.

Energy — Oil and Gas, Exploration and Production
Investment recommendation
We are initiating coverage of Pine Cliff Energy with a BUY rating and a
C$2.25 target price. PNE has had a great run over the last year,
increasing its share price by ~60%, but in our view, this is just the
beginning. Driven by accretive acquisitions and a rebounding gas price,
we expect this stock to go materially higher over the coming year, as
reflected in our forecast return of 58%. Our valuation is NAV based and
maps to a 2014E EV/DACF of 14.7x.
Why we believe this stock is set to outperform:
 Gas Leverage to the Extreme. Simply the best way to gain
exposure to rising gas prices, in our view, given a production
base that is 95% dry gas with no hedging in place. As
highlighted in Exhibits 1 and 2, PNE is the most levered
company to natural gas prices in our coverage universe, with a
$1 increase in AECO prices driving an increase to estimated
CFPS of ~40% and an increase to NAV of over 40%. In our view,
if you want to own gas, you want to own Pine Cliff.
 Acquisitions to drive performance. PNE has taken a contrarian
approach by purchasing dry gas while others chase oil and
NGLs. The last two significant acquisitions by the company over
the last year have resulted in share price bumps of 46% and
36%, respectively. PNE currently trades at 9.0x 2014E
EV/DACF, but as we walk through in Exhibit 3, if the company
were to buy $100 million in assets at 5x cash flow, this multiple
would be just 6.8x 2015E estimates. Use a 5$ AECO price and
it’s at just 5.4x.
 Our Call? Give this management team your money. George Fink
is well respected as an excellent steward of capital, and for
good reason. Early investors in Bonterra Energy (BNE: TSX: Not
Covered) have been handsomely rewarded over the last 16
years, with a CAGR of 45% since 1998. In addition to the energy
space, Mr. Fink has also had success in mining, where at
Comaplex Minerals he provided investors with a CAGR of 21%
over a 15 yeear period.
Our C$2.25 target price is based in part on our assumption that the
company will be successful in completing $150 million in acquisitions
over the next year and post transaction its multiple will return to the
natural gas peer group average of 9.0x EV/DACF

Quicksilver Resources – Momentum Is Still To The Downside

Watch – Don’t Buy Until A Reversal Is Confirmed

In my book The Apprentice Millionaire Portfolio ( available on Amazon) I outlined the profits made as I chased Peyto Exploration( PEY ) an Alberta based natural gas producer from below $8 to above $30. As I am happy to report this one investment paid for my daughters to go to University.

I thought I had / have ? detected the same promise in Quicksilver Resources  ( KWK) at the end of 2013. It has suffered – I should say the shareholders have suffered greatly – and now it appears their profit salvation is at hand- or at least so it appeared when the stock went to the $3.50 level and 30% was still short. I had along with many others anticipated a rising nat gas price , rising stock price and short interest would propel the stock price. It did not happen and – again to quote Keynes ” When the facts change , I change ( my opinion) – what do you Do ?”

The point is that when your investing thesis proves wrong – get out and place your funds elsewhere. Don’t become wedded to a losing proposition . Not every investment decision can possible work out as we  ( optimistically ) anticipate.

Here is a one year chart – note Jack A. Bass Managed Accounts entered / exited  at the end of 2013  and beginning of 2014

Problem copying chart – available at

Quicksilver Resources Inc(KWK:NYSE, US)

Above Average
As of market close 21 Mar 2014.

Quote Details

Open 2.70 P/E Ratio (TTM) 2.9x
Last Bid/Size EPS (TTM) 0.92
Last Ask/Size Next Earnings 5 May 2014
Previous Close 2.68 Beta 2.02
Volume 13,051,380 Last Dividend
Average Volume 4,882,480 Dividend Yield 0.00%
Day High 2.86 Ex-Dividend Date
Day Low 2.59 Shares Outstanding 177.2M
52 Week High 3.67 # of Floating Shares 123.9008M
52 Week Low 1.44 Short Interest as % of Float 25.72%
 It failed to hold – despite record withdrawls from the natural gas storage and brutally cold weather in the nat gas fuel area of the north eastern U.S. I got in and out at that level and am watching the stock. It offers great promise – but they used to say the same thing about me.
The recent quarterly results did nothing to help the stock now a recent asset sale to reduce massive debt.
The recovery is still ” just over the horizon “. The book ” The True Believer” offers the psychological insight into those committed to an idea remaining committed long after any analysis could justify the continued commitment.
This is a stock to watch but to paraphrase    – the old saying  –  ” you can go bankrupt long before the market becomes rational “.
Repeated efforts to guess where the bottom is has caused many a holder to suffer with this stock. Jack A. Bass Managed Accounts broke even on this one and I hope may profit in adding this in the future – BUT NOT TODAY.
 NOTE:The same reasoning applies  is our continued interest in the shipping sector – closer to a recovery with the recent recovery of the Baltic Dry Index.
Recent Results :
Quicksilver Resources Reports Preliminary 2013 Fourth-Quarter and Full-Year Results

14 Mar 2014 – ACQUIREMEDIA

FORT WORTH, Texas, March 14, 2014 (GLOBE NEWSWIRE) — Quicksilver Resources Inc. (NYSE:KWK) today announced preliminary 2013 fourth-quarter and full-year results.

2013 and Q1 2014 Highlights:

– Raised proceeds and announced sales for total of $596 million

  •   Sold 25% interest in Barnett Asset to TGBR, a subsidiary of Tokyo Gas Co., Ltd., for net proceeds of $464 million
  •   Sold Montana Asset to Synergy Offshore LLC for net proceeds of $42 million
  •   Announced sale of Niobrara Asset along with SWEPI LP to Southwestern Energy Co., which is expected to generate cash proceeds of $90 million

– Refinanced $1.1 billion in debt, extended maturities and reduced weighted average interest rates

– Increased pro forma proved reserves by 20%

– Secured partners on the West Texas Asset and narrowed focus on core Wolfcamp to Pecos County

– Added to the 2014 derivative position; approximately 75% of expected 2014 equivalent production covered with commodity swaps at a weighted average price of $5.08/Mcfe

– Resumed Barnett drilling activity in the third quarter with the goal to rebuild volumes

– Secured amendment to lower gathering rate and defer capital spending requirements in the Horn River Basin

– Secured site for potential LNG exports from Canada

“Over the last year, Quicksilver has reduced debt, enhanced liquidity, and advanced projects,” said Glenn Darden, Quicksilver’s Chief Executive Officer. “We have more work to do, but with the improvements made, and what we believe will be more to come, 2014 is shaping up to be a significant year for this company

Raging River Exploration Inc

RRX : TSX : C$7.95  
BUY  Target: C$9.00

COMPANY DESCRIPTION: Raging River Exploration Inc. is a junior E&P company focused on the development of the Viking light oil resource play in Saskatchewan.

Energy — Oil and Gas, Exploration and Production INCREASED GUIDANCE AND NEW FARM-IN ACREAGE
Investment recommendation

Raging River announced fourth quarter results and an operational update which was highlighted by continued momentum in the first quarter, a new 100 section farm-in transaction, and increased guidance given a capital spending increase related to new farm-in well plans.  Overall, the release was positive and reinforces our positive view of the stock. The increased inventory and growth related to the farm-in adds $0.40 of value to our NAV and a commensurate $0.50 per share increase to our target to C$9.00, which is based on an unchanged 1.1x multiple to NAV and a 9.1x EV/DACF multiple.
Investment highlights Step out success at Forgan. Assuming its new wells track a Tier 6 curve and one of its six wells at Forgan was drilled on a section with no prior inventory assigned and the other five were on sections with a prior Tier 4 assignment, we estimate the value uplift from its step out success year- to-date to be ~$65 million.
Surging forward with a new farm-in. Raging River announced a farm-in transaction with an industry partner on 100 (95 net) sections at Dodsland. Based on its updated presentation, we suspect the farm-in was on Surge Energy (SGY: TSX, BUY, covered by Anthony Petrucci).  The transaction is positive as it adds ~60 low to medium risk drilling opportunities and potential upside to 360+ locations upon success.
Guidance gets a lift.  2014E CAPEX increases by $20 million to $235 million with a commensurate increase to average and exit production rates implying incremental capital efficiency of ~$40,000/boepd.
Valuation Raging River currently trades at a 0.9x multiple to CNAV estimate, 8.4x EV/DACF, and $157,500/BOEPD based on our 2014 estimates vs. its peer group averages of 0.7x CNAV, 6.7x EV/DACF, and $83,200/BOEPD


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