Painted Pony Pete Ltd PDPYF

Ccord rides the high range

[Tobuyornot]

Painted Pony Petroleum Ltd. (PPY : TSX : C$10.93) - Buy - Target:C$18.00 Proving out the plan; PPY on route to 20,500 boe/d in 2015; maintain BUY and C$18.00 target Investment recommendation 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. The company's latest two Montney wells tested at a combined rate of 26 mmcf/d (13 mmcf/d each). For reference, our type curve and well economics incorporate IP30s of ~5 mmcf/d. 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. Facility builds and expansions (Exhibit 3) will dictate the production growth profile, in our view. 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 (Exhibit 5), but on our increased estimates it is now trading at just 6.5x 2015E EV/DACF versus its gas weighted peers at 7.3x. In our view, the above highlights are significant developments for Painted Pony, and we explore them in further detail in our note. 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 favourite pick in the natural gas space, and we continue to rank it a BUY with a C$18.00 target price (NAV based, mapping to a 2015E EV/DACF of 10.8x).