Painted Pony Energy Can Surprise the Market

Painted Pony Energy’s impressive start to the year has turned into a nightmare as the stock has fallen off a cliff since March. Painted Pony’s impressive results for 2018 set the tone for a strong performance for the remainder of the year, as the company was primed to improve its balance sheet on account of production efficiencies and improving oil prices.

Let’s take a look at what went wrong for Painted Pony and if it is capable of staging a comeback.

A Closer Look at the Latest Developments

Painted Pony’s average daily production volume for the first quarter of 2019 came in at 54,389 barrels of oil equivalent per day. This was a 4% increase over the company’s fourth-quarter 2018 average daily production volume. However, the company’s production in the year-ago quarter stood at 60,703 barrels of oil equivalent per day, which means that the same declined 10% year over year.

Painted Pony’s first-quarter production was hurt to some extent by a temporary shut-in of 1,500 barrels of oil equivalent per day, which was a result of a weakness in pricing and third-party interruptions. Because of these bottlenecks, Painted Pony’s liquids production for the first quarter of 2019 was down by 1,250 barrels per day.

However, a jump in the average realized price was a tailwind for Painted Pony during the quarter. The company’s realized average commodity price came in at $3.67/Mcfe during the quarter, up 19% from the prior-year period’s pricing of $3.08/Mcfe.

The bump in pricing was enough to offset the lower production. Painted Pony delivered revenue of $107.7 million for the first quarter, up 7% from the prior-year period. However, this was not the only positive takeaway for investors.

More Positive Takeaways  

Painted Pony kept a handle on its costs during the quarter. Though the company’s production fell 10%, its capital expenses fell by a greater degree of 53% to $36.9 million. Moreover, the increase in the average realized price boosted Painted Pony’s operating netback by 12% year over year to $2.45 per share as it reduced its operating expenses by 11%.

Also, its net debt went down by 14% during the quarter to $341.4 million.

So, Painted Pony’s operational execution during the quarter was on point. But despite that, the stock has lost value in recent months, and that doesn’t seem justified.

As long as natural gas prices are heading higher, Painted Pony will be in a strong position to increase revenue.

The company is looking to deliver production between 54,000 and 56,000 barrels of oil equivalent per day this year. Though that would be a slight drop over last year’s output of 57,879 BOE/day. But this small decrease in production will allow Painted Pony to reduce its capital expenses this year by a third.

So, as long as natural gas prices are heading higher, Painted Pony will be in a strong position to increase revenue. But it looks like analysts aren’t convinced that Painted Pony will deliver a strong performance this year.

Its revenue is expected to decrease in the current fiscal year, and the company is expected to swing to a loss. But the way Painted Pony has performed in the first quarter, don’t be surprised to see the company beating expectations.

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Harsh Singh Chauhan
Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects.

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