Painted Pony Pete Ltd PDPYF

RE:Reserves

[lifeundergrad]

As one of the people who commented on how reserves aren't important, allow me to address your point with my two cents. You've highlighted some great points about the *potential*

• Do you really think that PPY could have a bank link that will allow them to borrow up to 300 million dollars without 4.6 TCF of proven + probable reserves.
  • Noting the availability of credit is a good derisking strategy, but that doesn't mean it's a sound investment. We don't know what criteria the bank is loaning on, all we can do is speculate.
  • A bank has different investment goals and criteria than mutual funds, institutions and other traders that affect the S/P.  The bank isn't investing in the same sense that we are.
  • Even though they are investing, they are much, much longer than anyone moving the needle.
• My comment was that reserves mean little to the S/P.
  • PPY is a great long-term investment, which is what the banks are counting on.
  • I'm not suggesting otherwise, but the stock-price doesn't reflect *only* long-term opinions on success, it's more reflective of current circumstances and short-term prospects.
  • Most large investors care about the balance sheet. Right now cash-flow isn't as amazing as it will be.  Should they tie up money for 3-5 years while waiting for that ramp-up, or invest elsewhere to generate more immediate returns? 

Look at Paramount Resources as an extreme example. By reasoning that "reserves affect shareprice" they should be flying. The Mackenzie Delta resources they have are part of a prolific deposit...a deposit that is reliant on a transport line which will never get built.  Thus, those trillions of cubic feet mean nothing to their sad s/p.  This is a stark example, obviously PPY is much closer to getting their gas to market...but a lot of things can happen between now and when those reserves become cash-flow.

Like...

• The price of energy could plummet. 
• They could have unforseen setbacks (accidents, disasters).
• New governments and regulations could come in.
• New players in the area with better ROI prospects could pop-up.

All sorts of things that make waiting worthwhile for investors that can affect shareprices, especially since there are plenty of deals in the patch right now.

I  hope this helps you get over the statement that reserves are not important.  They are important, just not to our share price for the foreseeable future. Netbacks matter to the shareprice. Debt matters. Cash-flow matters. Capital programs matter.  Lots of things that are material to money, not potential. 

To close on a potentially weak but relevant analogy: Imagine you're betting on an F1 race, but instead of picking the "overall" winner you're trying to choose who will be in the lead at lap 10, at lap 30, at lap 50 etc. This is analogous to investment timeframes. Does the size of the fuel tank (reserves) matter? No. All that matters is that there's fuel readily available and that the team can put the car into a good position at times that matter to you.