Can This Natural Gas Producer Ever Bounce Back?

Painted Pony Energy Ltd. (TSX:PONY) is extremely attractively valued and appears ready to soar.

gas

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It has been a tough start to 2018 for natural gas producers. The price of natural gas has tumbled 25% for the year to date, and despite falling inventories, there are signs that an upturn may be some time off. This has driven the price of natural gas producers lower. Driller Painted Pony Energy Ltd. (TSX:PONY) has plummeted 14%, while Canada’s largest natural gas producer by volume, Encana Corp. (TSX:ECA)(NYSE:ECA), saw its stock fall by the same amount.

Nevertheless, there are signs that natural gas will eventually rebound, and the latest dip in Painted Pony’s shares leaves it attractively valued. 

Now what?

Painted Pony is focused the Montney in northern British Columbia, which is rated by many analysts as Canada’s premier natural gas play. The company’s properties have been assessed to have natural gas reserves of 1.1 billion barrels of oil equivalent, which have an after-tax value of $2.6 billion, or just under $16 per share. That valuation was independently determined using an average natural gas price of US$1.73 per million British thermal units (mmBtu) for 2018 and US$2 per mmBtu for 2019, which are both well below the current spot price of US$2.75 per mmBtu.

This highlights just how tremendously undervalued Painted Pony is by the market and the considerable potential upside that is on offer when natural gas rebounds.

Impressively, Painted Pony has been able to significantly grow production.

For 2017, the company’s output almost doubled to 42,882 barrels daily. The driller was able to do this while reducing operating expenses, which, for 2017, were 6% lower year over year. That, along with higher natural gas prices during 2017, saw Painted Pony report a netback of $2.01 per thousand cubic feet (mcf) of natural gas produced, which was 16% higher than a year earlier.

General and administrative expenses for 2017 were also lower, dropping by 14% year over year; that in conjunction with a higher netback, Painted Pony reported a 2017 net profit of $122 million compared to a $52 million net loss in 2016.

Based on Painted Pony’s 2018 guidance, the company’s bottom line should continue to grow. At the bottom end of its guidance, production is forecast to grow by at least 42% year over year, which, coupled with Paint Pony’s ongoing focus on reducing costs and higher natural gas prices, will give its earnings a solid lift.

Remarkably, that growth is expected to be achieved with a significant decrease in capital expenditures because of significantly improving efficiencies associated with drilling and well completions.

So what?

Painted Pony is an attractively valued natural gas producer which offers investors considerable potential gains because of the quality of its assets and the fact that the value of its reserves is significantly higher than its current price. Because of the improved outlook for natural gas, along with Painted Pony’s ability to materially expand production, its cash flow and earnings will grow further in 2018, which should give its shares a healthy boost.

Should you invest $1,000 in Rogers Communications right now?

Before you buy stock in Rogers Communications, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Rogers Communications wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $21,345.77!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 24 percentage points since 2013*.

See the Top Stocks * Returns as of 4/21/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Matt Smith has no position in any stocks mentioned. 

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Energy Stocks

a man relaxes with his feet on a pile of books
Energy Stocks

I’d Put $5,000 in This Dividend Giant for Decades of Income

Looking for a stock that can provide decades of income in addition to strong growth and defensive appeal? Consider this…

Read more »

engineer at wind farm
Energy Stocks

2 Canadian Oil and Gas Stocks to Buy and Hold Through Energy Transitions

Enbridge is one oil and gas stock that has the network and infrastructure to thrive despite the energy transition.

Read more »

Trans Alaska Pipeline with Autumn Colors
Energy Stocks

Enbridge vs. TC Energy Stock: How I’d Split $12,000 Between Pipeline Dividend Giants

Investing in blue-chip TSX dividend stocks such as Enbridge and TC Energy is a good strategy for income-seekers in 2025.

Read more »

A steel grain silo storage tank with solar panel in a yellow canola field in bloom in Alberta, Canada.
Energy Stocks

3 Canadian Green Energy Stocks to Buy and Hold in Your TFSA for a Sustainable Future

Renewable energy stocks are some of the best options for long-term growth, and these are top options.

Read more »

oil pump jack under night sky
Energy Stocks

Canadian Natural Resources: Buy, Sell, or Hold in 2025?

Canadian Natural Resources is down more than 20% in the past year. Is CNQ stock oversold?

Read more »

golden sunset in crude oil refinery with pipeline system
Energy Stocks

These 2 Energy Stocks Are a No-Brainer in Today’s Market

These two energy stocks have reliable operations and pay significant dividends, making them two of the best stocks that you…

Read more »

Canada national flag waving in wind on clear day
Energy Stocks

Top Canadian Value Stock I’d Consider During This Buying Opportunity

Are you looking to put some cash to work during this downturn? Here are two TSX stocks to have on…

Read more »

A plant grows from coins.
Energy Stocks

Got $25,000? Turn it Into $200,000 in a TFSA as Canadian Dollar Gains

This energy stock may not have a high dividend, but it certainly has a high rate of growth to look…

Read more »