Painted Pony Pete Ltd PDPYF

RE:RE:RE:Major Holders of PONY ..... How will they vote ?

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TD Investment Conclusion 2021 Gas Prices Have Improved Materially: The Henry Hub spot natural gas price has materially improved over the past month (~50% MTD to ~US$2.60/mcf). More importantly, from a capital budgeting perspective for E&Ps, the 2021 forward curve has moved considerably higher (+12%) m/m and is 20% above year-ago levels.

Strong Gas Prices May Prompt Producers to Revisit Prior Plans for FCF: This rally in natural gas is taking place against an industry backdrop of restrained capital budgets, limited external equity/credit availability and a multi-year evolution in the underlying business models of many E&Ps to prioritize FCF directed to equity and, more recently, debt reduction rather than growth capital. We believe that many management teams and boards of gas-weighted E&Ps will be having in-depth debates about the best use of FCF in 2021.

A month ago, it was likely an easier decision for producers - FCF was most likely going to be directed to debt repayment and pre-existing dividends. With the recent rise in 2021 natural gas prices, we believe that many producers will at least consider adding growth capital to their 2021 budgets as: Leverage metrics look considerably better at 2021E strip pricing than 2020E (easing the urgency for additional debt reduction – except in cases where refinancing options are unclear).

Producers can hedge anticipated production from new wells brought on stream in 2020 – essentially locking-in positive IRRs even if we experience a precipitous decline in natural gas prices in 2022+. In this note, we look at improved y/y leverage metrics under a strip pricing scenario and explore how hedging 2021 gas prices for new-well production can lock-in robust economics from capital spending.