Review of the company’s corporate presentation:
Page Four:
The company states: Large and highly prospective 350 net section land position: How about mentioning that there is a 2% GOR and also that they are looking at significant expiries. Is that not important for investors to KNOW!!
Financial Info:
Shows that the company has 60.1 million shares outstanding: What about the recent financing? This number is not accurate!!
Market Cap: the Company shows that the market cap is $222 million. That is not correct and has not been correct since July 3, 2015. It is September and the market cap based on their shares outstanding is $168 million, that is a 76% of what they are presenting. That is a material difference.
The Net Debt on the company is a very significant $43,800,000 on a credit line of $70 million. That line is based on the March 31,2015 GLJ strip prices. I would expect the GLJ strip numbers may change and the credit facility could be under pressure to be reduced. More Importantly, the company states on Page 5:
“Trading at a significant discount to Montney peers,1 despite showing strong growth and a solid balance sheet – and within the most condensate-rich part of the play”
How can the company state that it has a “solid balance sheet”. The company is $43,800,000 into a credit facility of $70 million. The risk of a reduction of the credit line is real. I have to disagree that the balance sheet of the company is solid. Solid what?
Page 6: the company states:
Montney Condensate-rich Gas Project q Kicking Horse currently holds 471 gross/350 net sections in the Deep Basin (98% operated), containing mixed rights q Kicking Horse team has collectively drilled in excess of 120 Deep Basin wells with greater than 80 directly into the Montney Formation
Why does the presentation not describe the near term expires. A large land that is about to expire and cannot to be retained through drilling or mapping is worth what? The company in their latest news release that they were going to drilling a vertical well on the 8-35-63-7 W6 location. Who many sections will be saved? Are the sections in the first term or second term. If the lands are in the second term, then the leases need far greater drilling to be retained. Do not want to get technical on this but there is no way the company with a capital budget of $22 million will be able to hold the lands. Thus the company needs to lay out a plan of how they are going to deal with expiries. Come on Steve, give us your big plan.
Page 10: The company states that 65% of the acreage is booked in the East Kakwa
Where is the upside. This play has been heavily booked, and the bigger question is, at what price deck were the reserves booked. Is there a downgrade coming, and will that negatively impact the line of credit.
The company presents on Page 10 a McDaniel Type Curve Reserve Assignments
. In the fine print at the bottom it states: * Kicking Horse’s reserves assigned from 46 total locations by McDaniel at December 31, 2014, NPV are using McDaniel Jan 1, 2015 price deck and are discounted at 10% Before Tax The big question is, has the price deck as at Jan 1, 2015 changed materially as of this date? I would expect so, thus the representation of NPV 10 Before Tax of $6.29, $10.64, $9.83 and $17.7 accurate today. This is a serious issue if the company is presenting Net Present Values that may not be correct today. The company needs to provide an update on the NPV based on the new price decks not as of Jan 1, 2015. The company on Page 4 is using GLJ and referring to forecasted pricing and costs as of March 31,2015 and then on Page 10 they are using McDaniels January 1, 2015 price deck. Why are they using two different reserve engineers to provide strips. Now in the super fine print of the disclaimer at the front of the presentation it states: Estimates of the net present value of the future net revenue from
Kicking Horse's reserves do not represent the fair market value of Kicking Horse's reserves. The estimates of reserves and future net revenue from individual properties or wells may not reflect the same confidence level as estimates of reserves and future net revenue for all properties and wells, due to the effects of aggregation. In this presentation, NPV10 represents the net present value (net of capex) of net income discounted at 10%, with net income reflecting the indicated oil, liquids and natural gas prices and IP rate, less internal and external estimates of operating costs and royalties.
Are you reading that paragraph. Reserves do not represent the fair market value.
On Page 13: the company indicates the yields on the wells. Today Oil closed at approximately $44 dollars. The company indicates on the chart that at $45 WTI the one mile wells have a Internal Rate of Return of minus 3%. Yup that’s a loss. The 1.5 mile well has an internal rate of return of 11%.
These wells do not look to be profitable below $45 WTI.
As I have always said, ask the questions. Challenge your Broker/Adviser to look for the answers. My analysis could be flawed and if it is, please enlighten me. I am just interpreting the information in the power point.
Steve, address the questions. The CEO has to do more than geology.