Pinecrest Energy: Highlighting One of the Best Junior Oil Stocks in Canada

Have you ever wondered which Canadian junior oil stock in the Western Canadian Sedimentary Basin should top your buy/watch list? The answer is simple: Pinecrest Energy (TSXV-PRY). PRY is one of a few light oil stocks (99% oil) that enjoys a healthy balance sheet, top tier netbacks, high growth and a lot of running room in a proven low risk light oil play.

High Growth

In 2011, Pinecrest averaged 1,347 bopd (99% oil) and while there is no official guidance for 2012′s average production (except for the exit rate of 5,000 bopd), my estimates point to at least 4,000 bopd (99% oil) for the year.

That’s almost 200% in growth.

Using a realized oil price of $75 per barrel Edmonton Par for 2012, the company will generate around $72M in cash flow. With an estimated debt of ~$83M exiting the year, the Debt to Cf ratio ends up slightly above 1.1x or lower if average production ends up a couple hundred barrels above 4,000 or if realized oil prices end up higher.

For 2013, I expect a 50% increase in average annual production to around 6,000 bopd, unless of course Europe totally ruins the global economy forcing energy companies to curtail spending.

Pure Slave Point Oil Player

Pinecrest PRY.V 0.17 [0.00] holds an enviable position in one of Canada’s hottest light oil plays, the Slave Point formation oil play in Northern Alberta. The company assembled a dominant position of 250 net sections of land which translates into a net drilling inventory ranging between 235-435 locations depending on drilling 4 wells/sections or down spacing to 8 wells per section. At the low end of the estimate, Pinecrest has about 10 years of drilling inventory based on its 2012 program of 29 wells!

Highest Netbacks 

In Q1/12, Pinecrest reported the highest netback (profit per barrel) across the Canadian junior universe realizing $71.60/boe, before hedging losses or $69.51/boe after realized hedging losses.

oil netbacks

Top Tier Netbacks – click to enlarge

Obviously, the 99% oil weighting while a boon in a strong oil price environment can quickly turn to a weakness decimating the share price if oil prices collapsed since the company is a play on a single commodity. But with global oil demand on the rise and the fact that its breakeven price is one of the lowest ensures it will survive the volatility we’re seeing right now and prosper once the markets return.

pinecrest energy corporate netbacks

Size of the Prize 

Pinecrest’s 235 net drilling locations contain an estimated 580 million barrels of Discovered Oil Initially In Place of which 67.5 million barrels are considered recoverable representing 40% of the Slave Point land base (upside no 1). But this is only based on a 13% recovery factor using primary recovery based on a drilling density of 4 wells per section. There is a lot of upside to primary recovery if one considers a drilling density of 8 wells per section (upside no 2). Let’s not forget the company began implementing waterflood which can potentially increase recoveries by 50% to 100% over primary recovery (upside no 3).

Best in Class Team

Pinecrest is led by Wade Becker, president and CEO, which was one of the original founders of Crescent Point Group. The team is respected by the market which means the stock is among a few that always trades at premium valuation to the peer average group. But more importantly, it means this is the first stock risk money enters when sentiment turns positive on oil.

The team has every reason to succeed; they have a history of value creation and own 25% of the shares on a fully diluted basis.

Financial Flexibility

As of Q1 of 2012, the company had $18.5M withdrawn on its $125 million line of credit which provides the company with a lot of financial flexibility. If we were in a strong oil price environment, I would have expected the company to up its guidance for the year and increase its spending. The decision is easily justified when you have the highest netbacks in the industry.

Conclusion

Finally, in a market where drilling and servicing costs are falling (thanks to low NG prices and lower oil prices), companies with meaningful cash flow such as PRY benefit as they continue to grow production and reserves for a lower cost. Growth in reserves has not been discussed at all, suffice to say it will be significant as more and more locations get booked. The premium valuation is certainly justified and while the share price is not immune to fear and market volatility,  PRY remains among the best bets on oil among Canadian oil and gas producers for the long run.

What do you think of PRY?

 

66 comments to Pinecrest Energy: Highlighting One of the Best Junior Oil Stocks in Canada

  • CashIsKing

    I’ll start accumulating when its SP drops below $1.6

  • Doug

    .25 cents from it’s 52wk low of 1.39, 1.2M shares switched hands today. Adding to my watch list. Thanks for thee update Mich.

    • Mich

      You’re welcome Doug, just remember to be nimble, this risk off environment is likely to persist for an extended period of time.

  • Lee Roth

    PRY.V is not a bargain, it is not even considered cheap actually.

    it trade at 100,000+ $/boepd which is not low at all.

    Buy at your own risk. I just prefer buying bargains.

    • Mich

      You’re right Lee, as I mentioned above, the stock enjoys a premium for more than a good reason. Some of the bargains you like might not even survive as a company till the end of the year. It’s a bad environment for juniors and only the best will survive and thrive.

  • CashIsKing

    Renegade has entered SlavePoint. Are you still watching RPL.V?

    • Mich

      I am familiar with RPL, their Slave Point play enters the scene around the end of the year when they announce results from their first wells.

  • [...] Beating The Index said Pinecrest Energy is one of Canada’s best junior oil stocks. [...]

  • Diego

    this uber promotion is over…maybe one round of bullets left in July…next Q2 report due in August will sink this ship…production growth in Q2 was abysmal…Mich..you are only out to buy low..promote..then run…pry WILL SINK TO NEW LOWS AROUND $1.20 IN LATE AUGUST

    • Mich

      Diego,

      While the whole market might be in the garbage in August, please share with us what you know of the production growth in Q2. I confirmed with one of the VPs guidance is still for 5,000 bopd exiting the year.

  • Diego

    way too much cheap paper.200 million…Mich..I know you won’t let my comments get on your board..
    .(iv) During May 2010 the Company issued 23,613,810 common shares at a price of
    .375 per common share for gross proceeds of $8,855,179; 16,063,864 common share units (“Units”) at a price of
    .375 per share for gross proceeds of $6,023,949 and 13,364,666 flow-through units (“FT Units”) at a price of
    .375 per unit for gross proceeds of $5,011,750. The private placement closed in two separate tranches on May 7, 2010 and May 25, 2010. Each Unit is comprised of one Class A common share and one Class A common share purchase warrant. Each FT Unit is comprised of one flow-through common share and one flow-through common share purchase warrant. Both the common share purchase warrants, and the flow-through common share purchase warrants are exercisable at a price of
    .50 subject to certain share performance criteria being satisfied. At July 31, 2010, all share performance criteria had been met.

    (v) On July 7, 2010 the Company issued 24,050,000 common shares at a price of $1.04 per common share on a bought deal private placement for gross proceeds of $25,012,000. On July 9, 2010 the Company issued an additional 3,607,500 common shares at a price of $1.04 for gross proceeds of $3,751,800.
    (vi) On September 15, 2010 the Company issued 25,000,000 common shares at a price of $1.40 per common share on a bought deal placement for gross proceeds of $35,000,000. On October 12, 2010 the Company issued an additional 3,663,143 common shares at a price of $1.40 per common share for aggregate proceeds of $5,128,400.
    (vii) On November 16, 2010 a total of 55,660,000 common shares were issued at $1.55 per common share for gross proceeds of $86,273,000

    b) Performance Warrants: On May 21, 2010, the Company granted 4,830,000 of performance warrants to various directors, officers and employees, all of which have vested. The warrants are exercisable at
    .50 per common share subject to certain share performance criteria being satisfied. As at July 31, 2010 all share performance criteria had been met, and all vested warrants are exercisable. No performance warrants were exercised at September 30, 2011 and December 31, 2010. The warrants will expire on May 21, 2015.

  • Mich

    Diego, I respect everyone’s opinion and this is what the site is about: exchanging opinions. I do not block comments on this site if they’re respectful.

    The O/S is a slight negative, it would have been nicer to have 100M or less in O/S. On the other hand, PRY has raised money accretively every time its stock reached new highs. This insured the company enjoyed financial flexibility year after year rather than getting punished by the market for a high debt load.

    In the O&G business, juniors must tap the market continuously in order to reach the milestone of self funded growth ie several thousand barrels of prod.

    Is the above the only problem you have with PRY? I’d like to hear more from you.

    Cheers,

    Mich

  • Diego

    thanks Mich….
    this stock has traded over 60 mil shares in the last month,mostly between $1.50 and $1.85….so I believe that with the majority of the shares in the hands of retail clients now,whoever are driving this promotion are washing their hands and moving on..results of Q2 will confirm weak production growth,few wells drilled and evidence of high decline rates I expect…
    guidance will promise rigs in the field,wells drilled and growth..in the meantime oil prices have to get near $90 and the discount to WCS and WTI has to stay narrow…
    to get back over $2…market makers would need to bring in easily fresh cash to buy 80 mil shares…as bagholders are ready to bail if given the chance to get their money back..I don’t believe they’ll get that chance..at least not until April 2013…

    respectfully…all the best..diego

    • Mich

      Diego, it’s an interesting theory but management still owns 25% on a F/D basis. Skin in the game is extremely positive, they have every reason to succeed.

      As for Q2, remember that they’re all in the same boat, spring breakup impacts all producers. What matters is an intact guidance and the upside of waterflood on their assets.

      Let’s hope the tight spreads with WTI oil hold!

      All the best,

      Mich

  • [...] Pinecrest Energy: Highlighting One of the Best Junior Oil Stocks in Canada - Mich takes a look at another great junior oil play. [...]

  • Diego

    Canada crude-Spreads shrink as Imperial restarts Alberta plant
    Mon Jul 16, 2012 9:21pm GMT

    * August WCS quoted at $17.25/bbl under WTI

    * Light synthetic flat with WTI

    * Imperial restarts Strathcona after 9-wk turnaround

    CALGARY, Alberta, July 16 (Reuters) – Canadian cash crude oil prices extended recent gains on Monday as demand picked up with the restart of Imperial Oil Ltd’s Alberta refinery after more than two months of planned maintenance.

    Western Canada Select heavy blend for August delivery last sold for $17.25 a barrel under benchmark West Texas Intermediate, compared with $19 under WTI on Friday, according to Shorcan Energy Brokers. That was its smallest discount in more than seven weeks.

    Light synthetic for August was quoted on par with WTI, compared with $1.15 under late last week. That was its tightest differential since May 24.

    Canadian crude spreads have tightened steadily since the start of the month. Momentum increased last week when Enbridge Inc rescheduled a three-day maintenance shutdown of its 491,000 barrel a day Line 5 oil pipeline in the U.S. Midwest for later this month, rather than pushing it into August.

    On Monday, Imperial Oil said its 187,000 bpd Strathcona refinery near Edmonton, Alberta, resumed normal operations after nine weeks of planned upkeep. There had been some speculation in the market that the work might be extended.

  • Diego

    oil up over $88…PRY down on big volume..lost 7 cents to $1.66 on 2.4 mil today….it’s important to read the market…25% includes 8 mil cheap 50 cent performance warrants…rest cheap 37 cent paper…and drawing massive salaries,perks,expenses ad infinitum…sure after good(assumption 1) Q3 and Q4 reportssp will make good gains…as power brokers,Alta.FE,Cannaccord,Desjardins,Macquarie,Dundee,Sprott,Scotia,Peters,Paradigm will blast targets and recommendations forever…meantime my recommendation is sit back 4 weeks and buy the august lows…
    Mich…at $2 the market cap is $500 million..and how much money will PRY make in the next six months…add on debt…we’re in negatives…ok so the hold land leases which are costly…
    the metrics for the entire oil patch are being swept out with the bathwater..the days of $100,000 / boed on 2013e production dream numbers are over…most importantly..the float…well over 160 mil shares is an ocean of volatility with impatient and fleet footed bagholders..jmho…I’ll be back after Q2 report hits the newstands..the well connected ,very sophisticated uber-promotion is dead.ciao

    • Mich

      Diego,

      I, like you, expect new lows as we close in on the US elections. It will most likely get worse before it gets better. That’s why I mentioned PRY should be on a buy/watch list. I never recommend buying or selling a stock, to each his own. But I do highlight what in my opinion are companies worth following. PRY has THE highest netbacks among its peers, the premium valuation relative to peers is deserved.

      Let’s see what the company has to say for its Q2…

      Cheers,

  • Diego

    strong day….6.7 mil shares traded…oil up nicely…
    promos from Nuttbar and CIBC helped…insiders also bought yesterday

    Very positive comments from Eric Nuttall (Sprott) when he appeared last night, with the caveat being to wait until release of the next qtr’s results before buying more. GLTA

    Comment 1.660 Eric Nuttall This one has been absolutely hammered. There is a perceived view that small caps are riskier. In the case of this company, they have the highest net backs (highest margins) of any Canadian oil company. Extraordinarily clean balance sheet. Can survive any low oil prices and will do well when oil improves. When they report, it probably won’t be the greatest quarter but after that he would consider buying. 2012-07-16

    ..
    http://www.reuters.com/article/2012/07/17/energycos-research-cibc-idUSL4E8IH1AC20120717?type=companyNews&feedType=RSS&feedName=companyNews&rpc=43
    ..
    PRY insiders buy 700k shares and MMT insiders sell 5 mm shares….

    Last Updated: July 17, 2012 Learn more about the TSX Insider Trade Marker Report
    Top 10 Stocks By Net Buys Volume
    Symbol Company Name Insider Buys Volume Insider Sells Volume Net Buys Volume
    PAK Pacific Coal Resources Ltd. 1,414,500 0 1,414,500
    PRY Pinecrest Energy Inc. 687,200 0 687,200
    PGK PNG Gold Corporation 196,500 0 196,500
    TOM Tolima Gold Inc. 100,000 0 100,000
    GYG Guyana Frontier Mining Corp. 53,000 0 53,000
    AUV Augyva Mining Resources Inc. 40,000 0 40,000
    NIK Nikos Explorations Ltd. 40,000 0 40,000
    ALM Alliance Mining Corp. 37,000 0 37,000
    BEL Belvedere Resources Ltd. 30,000 0 30,000
    PEP Petrostar Petroleum Corporation 28,000 0 28,000
    Top 10 Stocks By Net Buys Value
    Symbol Company Name Insider Buys Value $ Insider Sells Value $ Net Buys Value $
    PRY Pinecrest Energy Inc. 1,200,152.00 0.00 1,200,152.00
    PAK Pacific Coal Resources Ltd. 141,450.00 0.00 141,450.00
    PGK PNG Gold Corporation 25,992.50 0.00 25,992.50
    TOM Tolima Gold Inc. 15,600.00 0.00 15,600.00
    OLY Olympia Financial Group Inc. 9,588.75 0.00 9,588.75
    AUV Augyva Mining Resources Inc. 7,800.00 0.00 7,800.00
    NFD.A Northfield Capital Corporation 5,000.00 0.00 5,000.00
    HSR Homestake Resource Corporation 4,250.00 0.00 4,250.00
    BEL Belvedere Resources Ltd. 4,200.00 0.00 4,200.00
    CZX Canada Zinc Metals Corp. 3,955.00 0.00 3,955.00
    Top 10 Stocks By Net Sells Volume
    Symbol Company Name Insider Buys Volume Insider Sells Volume Net Sells Volume
    MMT Mart Resources Inc. 0 5,177,800 5,177,800
    LNG LNG Energy Ltd. 0 1,316,000 1,316,000
    IB IBC Advanced Alloys Corp. 0 741,500 741,500
    LO Lounor Exploration Inc. 24,000 207,000 183,000
    CXO Colorado Resources Ltd. 0 150,500 150,500
    NWT NWT Uranium Corp. 0 100,000 100,000
    LAN Declan Resources Inc. 0 58,000 58,000
    CBS Bard Ventures Ltd. 0 37,000 37,000
    BRS BRS Resources Ltd. 0 25,000 25,000
    SSU Silver Sun Resource Corp. 0 20,000 20,000
    Top 10 Stocks By Net Sells Value
    Symbol Company Name Insider Buys Value $ Insider Sells Value $ Net Sells Value $
    MMT Mart Resources Inc. 0.00 7,279,867.00 7,279,867.00
    IB IBC Advanced Alloys Corp. 0.00 81,742.50 81,742.50
    CXO Colorado Resources Ltd. 0.00 34,615.00 34,615.00
    LNG LNG Energy Ltd. 0.00 30,505.00 30,505.00
    LO Lounor Exploration Inc. 1,440.00 13,455.00 12,015.00
    NWT NWT Uranium Corp. 0.00 10,000.00 10,000.00
    OML Omni-Lite Industries Canada Inc. 6,150.00 13,284.00 7,134.00
    LAN Declan Resources Inc. 0.00 5,220.00 5,220.00
    SSU Silver Sun Resource Corp. 0.00 3,800.00 3,800.00
    BRS BRS Resources Ltd.

    • Mich

      Management buying a sizeable amount is very encouraging. They know what they’re running and what they are building. PRY is a winner long term regardless of the short term gyrations imo.

  • Diego

    got this in the mail..

    Please respond to this email with your level of interest, or give us a call at 604-643-0293 . Books will close without further notice. Thanks

    Pangea Energy

    Price: 0.35 USD per unit, includes full warrant at $0.50 for 12 months

    Amount: $1.5M

    Minimum: 20,000 units

    Eligibility: NO RRSP, NO TFSA

    Closing Date: July 20, 2012

    Details:

    - Approximately 40M shares outstanding, fully diluted. ($14M market cap)
    - Approximately $800k cash in treasury
    - Post financing, the company expects to have 110 bopd production net to Pangea from two wells at the Romanian Fauresti project (JV with Lotus Petrol).
    - Post financing, Pangea has an additional $2M in capital requirements in order to fund work-over and drilling which can potentially bring production to 550 bopd, net to Pangea.
    - IPO scheduled for Q4 2012

    Accredited Investors Only – Indefinite Hold Period

    Management:

    1. Quinton Rafuse,
    Chief Executive Officer & Director: Quinton Rafuse is a professional geologist with over ten years of experience in the oil and gas industry in various technical and leadership roles, including Sonoro Energy Ltd. (heavy oil Iraq), 3P International Energy Corp. (Ukraine),CEO of Avere Energy Ltd. (successful bid for4 blocks in Romania’s 2010 round),VP Geoscience for Ember Resources Inc. (Canada CBM), and geologist for Thunder Energy Inc. and EnCana Corp. This background allows Quinton to combine the application of oil and gas technical practice for identifying and characterizing resource opportunities with the corporate aspects of a start-up enterprise. He was selected as one of Oilweek’s Rising Stars in 2007. He graduated with a Bachelor of Science in Geology from the University of Calgary.

    2. Abbas Mahdi
    Chief Operating Officer & Director: Abbas Mahdi started his oil and gas career in 1997 as a stimulation engineer for Schlumberger at Lake Maracaibo, Venezuela. Since then he has progressed through various technical, operational and management roles. His career has featured enterprise start-up, turnarounds, marketing & business development, and technology commercialization. He has also managed several successful production enhancement projects in various locations where he has worked. Abbas holds 5 oil and gas patents, one of which has become a standard completion method for CBM operators in Alberta, which realize savings of 40% in completion costs. Abbas has worked in Canada, Colombia, Egypt, Iraq, Jordan, Libya, Saudi Arabia, Yemen, and Venezuela. He is fluent in English, Arabic, and Spanish. He graduated with a Bachelor of Science in Geology from the American University of Beirut in 1997.

    3. Kia Besharat, M.Sc
    Kia is a Managing Director at Ubequity Capital Partners, a leading global merchant and investment bank. He has extensive capital markets experience including advisory, M&A, restructuring and corporate finance. He also serves on the Board of Direct Media Technologies, a highly profitable internet media company, where he was instrumental in their $20M capital raises, and Pangea Energy, a private international oil & gas company. Kia holds a BA (Economics) from McGill and an MSc (Finance & Investment) from the University of Edinburgh. He is also actively involved in various charitable endeavours. Kia was one of Canada’s top tennis players, having competed in tournaments around the world.

    4. Richard Meloff, JD/MBA

    Richard is a Managing Director at Oliver Capital Partners. He serves on the Board at Boost Capital Corp. and Gideon Capital Corp. both of which have just announced significant resource acquisitions. Prior to joining Oliver, he served in various corporate development capacities at two large, publicly-traded companies and practiced corporate law in New York City, focusing on public M&A and complex strategic sourcing. Active in political and community affairs, Richard spent time in Washington, DC as a policy analyst and sits on the board of several charitable organizations. Richard holds a BA from McGill University and a combined JD/MBA from the University of Toronto.

    Presentation

    Thank you,

  • Diego

    Mich..what’s your read on this info…?
    DTX 67 million shares o/s
    PRY 259 million shares o/s
    DTX…WAY MORE boe/d…
    ..

    some neighbourly luv………………
    DTX,,,,thanks to Sculpin….new report out today…
    * now you tell me….does this Macquarie report sound familiar? The mark of a really good researcher and scribe is self-evident when what he reveals is confirmed by others imo.

    * remember this includes just the bakken acreage and not the Belly River Group at Brazeau as well.

    OJ

    400 million reasons to go long

    Event

    In this report, we take a quick look at DeeThree’s 2012 AB Bakken drilling results as well as highlight upcoming catalysts for the company.

    Impact

    Positive. Preliminary results from the company’s 2012 AB Bakken program appear to be top-tier. Its four wells with production data have generated peak 1-month production rates ranging between 253–345bbl/d on a calendar day basis. These results compare favourably to the average calendar day peak rates along the AB Bakken trend of only 103bbl/d.

    Over 400mmbbl in-place potential? We estimate that the company holds ~40 net AB Bakken prospective sections in the greater Ferguson area based on conversations with management. With an estimated 10–12mmbbl DOIIP per section, DeeThree could be on the verge of a material light oil discovery at over 400mmbbl DOIIP. We believe these lands could be worth ~C$3.89/share risked or nearly C$5.35/share unrisked (PV10AT, flat pricing).

    Upcoming catalysts. DeeThree has three near-term catalysts, in our view: 1) the company has ~7 gross horizontal wells (four AB Bakken/three Belly River) that will be tied-in through July/August that could push corporate production to well over 5,000boe/d by August (vs YE guidance of 5,000boe/d). 2) Considering no eastern AB Bakken horizontal wells were booked as part of its 2011 year-end reserve report, we wouldn’t be surprised to see a mid-year reserve or contingent resource report being issued. 3) We expect DeeThree to announce a larger land position at Ferguson as a result of participating in recent land sales.

    Earnings and target price revision

    No change.

    Price catalyst

    12-month price target: C$6.00 based on a 7.5x 2012 EV/DACF methodology.

    Catalyst: Updated reserve report; results from its AB Bakken or Belly River horizontal wells

    Action and recommendation

    DeeThree is among the few producers in our universe with visible near-term catalysts that certainly could support the stock over the next few months, in our view. As we mentioned previously, we continue to believe that the company is a prime take-out candidate. We reiterate our Outperform rating and C$6.00 target.

  • Diego

    DTX moved up today..
    guess we’re both feelin’ good about dat…?
    http://www.youtube.com/watch?v=svt_FRLpWlc&feature=related

  • Diego

    DTX…..the Brazeau Belly River surprise….

    * we have seen the Macquarie note confirm what was stated about the size of the Ferguson (Banff Siltstone) play area…even though they call it the “bakken.” It is estimated to be as large as 400 mmbo OIIP. You have also seen how the share price has reacted.

    * the potentially bigger pool is the Brazeua Belly River light oil pool. Very little discussion from the analysts on it….they would rather focus on the “bakken” oil pool at Ferguson.

    * yet the company estimates that the Belly River oil pool could be 300 mmbo OIIP to 400 mmbo OIIP and in fact might reach 600 mmbo OIIP to 700 mmbo OIIP…in time.

    * this would make it the second largest Belly river oil pool in all of Alberta. The largest being on the eastern side of the gigantic Pembina oil pool (Cardium).

    * this one, of course, is on the western edge.

    * you will note from the graphics below….that PBN has made an important Cardium discovery and extension of the western fringe Cardium pool area at the Brazeau Reservoir area in red….just to the SE of the DTX Belly River discovery.

    * the Belly River discovery overlays legacy Conoco lands and as a result DTX has something like 60 verticals that are still producing and still have all of that well and reservoir production history. It is truly stunning that a small outfit like DTX would have appeared to have discovered two massive light oil pools that could ultimately exceed one billion barrels OIIP.

    * even more important is that with pad drilling and cost de-escalation pressures on industry drillers and completion services companies is that both types of wells (horizontal) should be able to be drilled for around $3 mm per lateral.

    * when you start plugging these numbers into your calculator it is stunning. the fact is that the analysts have not even discussed Brazeau in detail is potentially jaw dropping.

    * go and see which area…Ferguson or Brazeau…which is high-lited in more detail by the company on their latest presentation.

    it’s been stated that they were just beginning to scratch the surface at their Belly River play…..I would have to agree with this assessment!

  • [...] @ BeatingTheIndex writes Pinecrest Energy: Highlighting One of the Best Junior Oil Stocks in Canada – Pinecrest is one of a few light oil stocks (99% oil) that enjoys a healthy balance sheet, [...]

  • W.C.

    Hey Mich,

    I keep hearing that PRY’s 2nd quarter results won’t be good and I assume this is to do with Spring Breakup or are there other factors your aware of? Also, any idea when the 2nd quarter results will be out?

    Thanks,

    WC

    • Mich

      WC, I don’t expect a disaster for Q2. Just like other producers, PRY faced Spring breakup, lower oil prices and higher differentials.

      I don’t know of operational factors that might have impacted the company. I am in for the exit rate target and not for Q2 which is the weakest Q of the year.

      Cheers,

  • Diego

    Mich..why on earth do brokers pump target prices with 7.5x2013e EV/DACF..don’t you agree these metrics are nonsense and sp’s will never be realized as conceived..you say you’re in waiting on 2012e production numbers…but don’t you factor in trading patterns and what you can discern from them..PRY has traded 23 mil shares in the last 6 trading sessions…surely a huge blow-off…sp will surely sink to $1.25 after Q2 report AND any real downward slide on oil price or differentials…
    http://www.investorvillage.com/uploads/8056/files/DL_PRY_03122012.pdf

  • Diego

    last comment..Mich..PRY has traded over 100 mil shares in the $1.50-$1.90 range since the beginning of June…I believe the promoters are walking from PRY and only EVENTUAL REAL LIQUID OIL PRODUCTION NUMBERS CAN TAKE PRY HIGHER…
    it’s gonna take 200 mil x $2 almost $400 mil fresh cash to get meaningfully over $2..and that kinda money isn’t coming from Santa..
    it’s gonna take a team of promoters to do it..and why..?..to give retail players their cash back..?…NEVER GONNA HAPPEN..!!
    my advice sell PRY this week..!

    • Mich

      You are very passionate about PRY, are you long or short?

      IMO PRY should easily trade above $2.30 based on 2013 metrics and that’s assuming an average annual production of only 6,000 bopd, $75 Edmonton Par and 4.5x CF.

      I have a tiny position below $1.90, so at $1.25 you can be sure I will more than double my holdings.

      Cheers,

  • Diego

    Mich..what do you base your PRY 2013 metrics on..?..surely not statements by management..and which qtr in 2013 are you relying upon for 6,000 bopd…last qtr production was only about 3,328 bopd..so your anticipating production doubling..?…
    read my lips..the shareholder base is eroding big-time…Q2 report has been pushed back till late August…everything is downhill at PRY….you won’t see $2.30 till late 2013….not much of a gain from present price and waiting one year…late August will see a huge blow-off of PRY..the uber-promotion is dead on it’s feet…September will see incredible lows around $1.25 barring any large upside on oil prices..lows will continue thru year end..

    • Mich

      Diego, management only announced the 2012 exit production rate of 5000-5200. The 6,000 figure is my own estimate for average production in 2013. In 2012, they stand to triple their avg annual production vs 2011 so I am very conservative with my 50% increase in production vs 2012.

      September lows will hit the whole sector with few exceptions, typical of the uncertainty the market hates (elections).

      You may be right about the $1.25 target but the destruction would not be exclusive to PRY. I’d love to hear more about your opinion. Feel free to email me if you prefer to disclose info in private.

  • Diego

    don’t have any inside tracks or in the field buddies…just watched this promotion peak out in February and observed the great run they had when all fundamentals went their way.culminating in the big $3.25..$60 mil flow thru….apparently ,now,they only have 2 rigs working and no plans to increase till Q3 review..big disappointment for many…truly the last 120 mil shares trading at sub $2 was my indicator that this deal is dying on it’s feet..I know promoters are not heroes and bagholders will have to wait a long time to get their cash back…I’m not saying I’ll be totally right on the money..I’m good at reading markets and like big trading juniors with volatility

  • Diego

    I’m expecting Q2 production at no growth from Q1′s 3,500..possibly a severe fall-off factor…with 2 rigs only for balance of 2012..how can they achieve 5,000 bopd…NEVER GONNA HAPPEN…
    THEY GOT the two $60 mil financings…sat back…and the promotional team parted ways…it’s over…sp will languish for 6-9 months…another cheap financing ahead for the special cronies I expect…see you Aug 28th when Q2 comes out

    • Mich

      Diego, remember last year when the patch was underwater until late july? Hey, everyone caught up to their guidance by intensifying drilling in Q3 and Q4. I don’t see the guidance in danger unless PRY changes its mind and gives notices.

      In the end, you may be right with the price predictions, but that would be in line with all the juniors which hit new lows in the autumn…

      Let’s wait and see…

  • Diego

    Mich..PRY spuded another well just today with their Chinook rig…I expect 2012e production at no more than 4,200 bopd…
    also today on 3 exchanges over 8.931 mil shares changed hands…so over 40 mil shares traded in 10 trading days…crazy…sp closed below $1.80….bad news is on the way and this sp will drift lower for a long time…

  • CashIsKing

    Hi Mich, any thoughts on Spartan oil? You made money on its predecessor Spartan Exploration last year. It seems to me a marvelous company: strong management, quality assets, net debt(even till year end),tight share structure, high net back, high % of oil and liquid, high growth of production, etc….
    I guess that’s why its SP has held well while most juniors are down down down. Do you own STO?

    • Mich

      Cash, STO is one of a FEW junior stocks that enjoy premium valuation and the CEO certainly knows how to create shareholder value.

      Unfortunately, I had a few stink bids below $3.00 that never got filled…sadly, I do not own any :(

  • Diego

    Mich..you’re not gonna make the newsletter-website Hall of fame recommending Pinecrest..not even an MVP award…not near a home run…not even a bunt single…know what I’m sayin’..?..30 mil shares traded in 8 trading days..and sp goes nowhere..even Kim Kardashian or miley cyrus could figure this one out..
    ..
    Date Open High Low Close Volume Chg % Chg Adj. Close
    07/26/12 1.85 1.93 1.84 1.89 5,542,041 0.07 3.85% 1.89
    07/25/12 1.78 1.82 1.75 1.82 3,120,809 0.04 2.25% 1.82
    07/24/12 1.84 1.85 1.76 1.78 7,821,512 -0.03 -1.66% 1.78
    07/23/12 1.78 1.84 1.72 1.81 856,895 -0.05 -2.69% 1.81
    07/20/12 1.84 1.90 1.78 1.86 3,827,595 -0.02 -1.06% 1.86
    07/19/12 1.81 1.91 1.79 1.88 2,298,573 0.13 7.43% 1.88
    07/18/12 1.91 1.91 1.69 1.75 5,072,383 -0.11 -5.91% 1.75
    07/17/12 1.71 1.91 1.70 1.86 5,893,532 0.20 12.05% 1.86

  • [...] @ BeatingTheIndex writes Pinecrest Energy: Highlighting One of the Best Junior Oil Stocks in Canada – One of a few light oil stocks (99% oil) that enjoys a healthy balance sheet, top tier [...]

  • [...] at BeatingTheIndex writes Pinecrest Energy: Highlighting One of the Best Junior Oil Stocks in Canada – One of a few light oil stocks (99% oil) that enjoys a healthy balance sheet, top tier [...]

  • Diego

    sweet..
    http://www.investorvillage.com/uploads/8056/files/blackmont47099.pdf

    Western Canada Select heavy blend for September delivery last sold for $24 a barrel under benchmark West Texas Intermediate, compared with $22 a barrel under WTI on Monday, according to Shorcan Energy Brokers.

    Some Canadian oil traders speculated that the pipeline could be shut for at least two more weeks, which could lead to some oil production getting shut in, as Alberta storage is already understood to be full.

    WASHINGTON (Reuters) – The U.S. government blocked Enbridge Inc from restarting a key Midwestern oil pipeline on Tuesday, saying last week’s spill on the line was “absolutely unacceptable.”

    U.S. Transportation Secretary Ray LaHood blasted Enbridge over the leak of more than 1,000 barrels of crude oil in a field in Wisconsin, which shut its 318,000 barrel per day pipeline on Friday.

    “I will soon meet with Enbridge’s leadership team, and they will need to demonstrate why they should be allowed to continue to operate this Wisconsin pipeline without either a significant overhaul or a complete replacement,” LaHood said in a statement.

    “Accidents like the one in Wisconsin are absolutely unacceptable.”

    Federal regulator Pipeline and Hazardous Materials Safety Administration (PHMSA), a division of LaHood’s department, delivered a corrective order to Enbridge on Tuesday, prohibiting it from restarting Line 14 until it can show regulators it has met safety standards.

    In a statement, Enbridge said it plans to complete repairs to Line 14 by Wednesday, and will submit plans to PHMSA to restart the line. The company said corrective orders are commonly issued after pipeline incidents.

    LaHood said there was no guarantee that permission would be granted to restart the line anytime soon.

    Corrective orders can delay resumption of pipeline operations, sometimes for weeks or months. When an Enbridge pipeline spilled crude into Michigan’s Kalamazoo River in 2010, the line was not approved for restart until six weeks later.

    LaHood’s department ratcheted up its oversight of pipeline safety last year after a series of high profile spills gained national attention, including Enbridge’s Kalamazoo River incident.

    The Wisconsin spill is another blow to Enbridge’s reputation. Earlier this month, PHMSA issued a $3.7 million fine for the 2010 Michigan spill and a National Transportation Safety Board report accused Enbridge employees of ineptitude and acting like “Keystone Kops” during that accident.

    Oil traders said that regulators’ response to the most recent Enbridge pipeline fiasco was expected.

    “This is the post-Macondo environment and Enbridge has become a serial offender on pipe leaks,” said one crude oil trader. “Given the vast scale of their pipeline network, it is probably disconcerting to regulators to see so many mishaps from someone holding an intrinsic ability to provide an environmental disaster.”

    OIL MARKET FALLOUT

    Enbridge will now need to submit a restart plan for the entire 467-mile (752-km) pipeline.

    The company will also need to test the ruptured pipe, evaluate previous inspections and commission an independent probe of its integrity management.

    Line 14 is a 24-inch diameter pipe that was installed in 1998, making it a relatively new line. Enbridge said the line, which carries Canadian crude to refiners in the Midwest, had been inspected twice in the past five years.

    “The delay will continue to cause Midwest gasoline prices to remain elevated, and the stranded crude oil will help Brent crude widen its premium over the WTI marker,” said John Kilduff, partner at Again Capital LLC in New York.

    Canadian crude prices fell on Tuesday following the announcement on the pipeline spill.

    Western Canada Select heavy blend for September delivery last sold for $24 a barrel under benchmark West Texas Intermediate, compared with $22 a barrel under WTI on Monday, according to Shorcan Energy Brokers.

    Some Canadian oil traders speculated that the pipeline could be shut for at least two more weeks, which could lead to some oil production getting shut in, as Alberta storage is already understood to be full.

    Canada is the largest source of foreign crude for the United States, supplying over 2.4 million bpd of the more than 8.3 million bpd imported by the nation on average in July. Enbridge’s lines, the world’s largest crude oil pipeline system, carry the lion’s share of those shipments.

    WISCONSIN EVENT

    In Grand Marsh, Wisconsin, the site of last Friday’s leak, two local residents had said over the weekend that one house had been “covered” in oil during the spill.

    An Enbridge spokesman denied that, and said the spill had been limited to the pipeline right-of-way, as well as a nearby field and some trees.

    In a statement, Enbridge said “the safety of people who live and work near our pipelines and the environment is Enbridge’s top priority.”

    Enbridge kicked off one of the most sweeping expansions in its history just two months ago, announcing a multibillion-dollar series of projects aimed at moving western Canada and North Dakota oil to Eastern refineries and eliminating costly bottlenecks in the U.S. Midwest.

    Enbridge shares fell 80 cents to C$41.03 in Toronto on Tuesday

    • Mich

      We’ve seen this movie before, happens every year these days.
      This too shall pass and if we were in a normal market I would’ve filled up on the heavy oil producers…

  • Diego

    here’s a new video…way better than PRY..

    Manitok tests 1,530 boe/d, 738 bbl/d at Stolberg wells

    2012-07-31 19:24 ET – News Release

    Mr. Massimo Geremia reports

    MANITOK ENERGY INC. REPEATS SUCCESS AT STOLBERG WITH PRODUCTION TEST RATES OF 1,530 AND 738 BOE/D ON ITS LATEST TWO LIGHT OIL WELLS

    Manitok Energy Inc. is providing an update on its operations.

    Manitok has completed production testing on its latest two drills in the Stolberg area of Alberta. The horizontal wells were the sixth and seventh wells of the 2012 drilling program, which is targeting conventional Cardium light oil. Both of these wells offset the second well of the 2012 program, which was still flowing at approximately 1,150 barrels of oil equivalent per day (909 net), including 1,020 barrels per day (806 net) of light sweet oil as at July 29, 2012. Without any fracture stimulation, the well has produced about 38,000 barrels of 51-degree API light sweet oil in its first 40 days of production, despite the usual minor facilities start-up issues. The lack of decline in the first month of production exemplifies the advantage of a conventional reservoir over unconventional reservoirs. Manitok’s working interest in each of the three wells is 79 per cent.

    The sixth well was tested over a 60-hour period and free flowed at a stable, unstimulated average rate of approximately 1,073 bbl per day (848 net) of 48-degree API light sweet oil and 2.75 million cubic feet per day (2.2 net) of sweet natural gas for a total average rate of about 1,530 boe per day (1,209 net). The seventh well was tested for 81 hours and was swabbed at an average unstimulated rate of about 738 bbl per day (583 net) of 45-degree light sweet oil with no measurable associated gas. Neither of these horizontal wells were fracture stimulated. Therefore all volumes produced originated from the reservoir. These two wells are anticipated to be on production by approximately the end of the third quarter. With the results to date, Manitok believes that it now has approximately 20 additional drilling locations for Cardium oil in the Stolberg area.

    Operations update

    The third well (64-per-cent working interest) of the 2012 program, which has a 700-metre horizontal leg and was not fracture stimulated, is expected to be on production in the first week of August. Approximately 300 cubic metres of drilling fluids were lost to the reservoir during drilling and completion operations. Manitok anticipates an initial production rate of between 80 and 150 bbl per day (51 and 96 net, respectively) of light sweet oil. Manitok believes that, once the drilling fluids have been recovered to a greater degree, production rates should improve.

    The fourth well (65-per-cent working interest) and fifth well (72-per-cent working interest) were both deviated wells drilled from the same pad into the crestal (highest) part of the Husky Cordel oil pool. The total capital required to drill both wells combined was about $4.6-million ($3.4-million net), which is equivalent to the capital required for one horizontal well in the area. Both wells are at various stages of their respective completion operations. The fourth well is a Cardium natural gas well and earned an additional 40-per-cent working interest in lands with at least one offset location to Manitok’s prolific Cardium oil wells mentioned herein (drills No. 2, 6 and 7 in the 2012 drilling program). The fifth well intersected a deeper Cardium zone, which is currently being evaluated for further completion operations once downhole pressure data analysis is concluded. Manitok expects to move forward on the completions operations of both wells in due course.

    Manitok is 14 days into drilling the eighth Cardium oil location (81.6-per-cent working interest) of the 2012 program. It is the first of two planned horizontal wells to be drilled from the same pad that offsets the first vertical Cardium exploration oil well, which tested at about 150 bbl per day of light oil and was on production in May and June. This well is, and will continue to be, shut in during the drilling operations. A multiwell battery will be installed following the completion of the two horizontal wells, which is anticipated to be by about the end of the third quarter.

    Financial update

    With the results of the latest two wells, Manitok is well on track to achieving its year-end exit production target of 3,730 to 3,830 boe per day, with about 57 per cent to 60 per cent coming from oil and liquids. Manitok has recently entered into an agreement with ATB Financial, which will increase Manitok’s credit facility to $30-million versus its previous $25-million facility. Manitok continues to expect to be able to finance its previously announced $45.2-million capital expenditure program in 2012, with cash flow and its new credit facility.

    Manitok’s second quarter financial results are expected to be released early in the week of Aug. 27.

    We seek Safe Harbor.

  • [...] has been trading above WTI, I believe PRY is one of the best vehicles to profit from this premium. Pinecrest Energy was featured not that long ago on this site as one of the best junior oil stocks in Canada. I have [...]

  • Diego

    took a while..but I’m right again..$1.95..>$1.65..of course they can do a flow thru north of $2 and means net to investors $1.30.Keith Schaeffer has done his job….biggest dud in the oilpatch..if oil prices weaken..lookout.otherwise these bunch of crooks laugh on

    • Mich

      No you’re not and you were never right.
      Where’s $1.25 for September?
      Who told you the company needs to raise money right now?
      And what does Keith Schaeffer has to do with PRY?

  • [...] build my position slowly so this might not be the last transaction in PRY. There’s mincing words, Pinecrest Energy is one of my favourite light oil players in Canada. Water-flood is going according to plan and [...]

  • xuamox

    Very interesting post. I have enjoyed reading the comments back and forth between Mitch and Diego. I bought Pincrest at .84, only to watch it slide down to .63 today. Where do both of you stand on PRY at the moment?

    2013 Q1 Results:

    Achieved record average production of 4,315 boe per day (99% light oil) an increase of 28% from 3,358 boe per day for the three months ended March 31, 2012. Average production for the first quarter 2013 increased by 23% compared to Q4 2012 (3,510 boe per day);

    Achieved 100% drilling success, with a total of 12 (11.3 net) oil wells drilled compared to 9 (8.8 net) oil wells drilled during the quarter ended March 31, 2012;

    Increased funds from operations by 6% to $21.5 million ($0.10 per basic and $0.09 per diluted shares outstanding) compared to $20.3 million ($0.10 per basic and $0.09 per diluted shares outstanding) for the quarter ended March 31, 2012. Funds from operations increased by 4% compared to $20.7 million ($0.10 per basic and $0.09 per diluted weighted average shares outstanding) during Q4 2012;

    Continued to generate a top decile operating netback of $60.60 per boe for the quarter ended March 31, 2013. Increased production costs consisting of increased emulsion hauling from wells not yet tied in, advanced expenditures on propane and chemical supplies and a number of non-recurring well workovers resulted in a lower netback compared to $69.51 per boe for the quarter ended March 31, 2012 and compared to $65.71 per boe for Q4 2012;

    Completed conversion of its third (Loon Project #1) waterflood project and started injecting water in the latter part of March 2013;

    Increased bank line to $155 million during the quarter. Subsequent to the end of the quarter, the Company’s credit line has been increased to $165 million.

    • Mich

      X,

      2 things no longer apply:

      1. High growth rate is about done because of
      2. Limited financial flexibility

      Add the steep decline rate that is hindering CF recycle and you’ve got your sub-$1 Share price.

  • Chris

    So how do they get out of this spiral that thier in? Now sitting at.41. question is should they be buying back $20million dollars worth of shares or using that to pay down the debt.

  • Mich

    Good question Chris,

    Up until last year their balance sheet was strong, their production was growing and then…they hit a wall in growth and the balance sheet went downhill just like production. The steep declines can largely be blamed for that.

    PRY is a shadow of its former self right now with waterflood being the ONLY saving grace. Markets abandoned PRY for a simple reason, why wait on WF when there are plenty of other fast growing producers with potential for faster capital gains?

  • Chris

    Thanks for the response Mich – “there are plenty of other fast growing producers with potential for faster capital gains?” like? I’m thinking that they should spend the money on drilling -20 million is 6 wells drilled. So what do you believe to be the correct valuation? Are they now a value trap? Also what does the potential sale of novus energy mean? Thanks

    • Mich

      I haven’t looked at PRY’s valuation lately so I can’t give you a proper opinion. This is a wait and see stock, until WF is in full effect you might as well consider it a value trap because the stock ain’t going anywhere.

      In PRY’s case, I’d rather see the $20M spent on drilling instead of a buyback program. But hey, maybe they see something we don’t?

      A sale of NVS will boost the stock price of many players in the sector and it’s already happening for those that are known to be on sale like TOL.

      The market will realize how cheap our companies are trading at right now!

  • Chris

    So a few additional questions:

    1. Do you have access to management?

    2. They are running out of financial flexibility so what do you see thier options for raising capital? Issue more shares? Go to the banks and increase the debt?

    3. Is there any chance they meet exit guidance? I think there is NO chance given that they started drilling a month later this year.

    4. What is a great entry point? Does this go to .30? to .20? – I originally bought in the .80′s following Wade’s lead at $1.20! Got out in the .60′s when I realized it’s a falling knife.

    5. Why not put the company up for sale?

    • Mich

      Hey Chris, please find my answers below:

      1. I don’t have any special access, management is very accessible to investors as they(CEO+CFO)always returned my calls and answered my emails.

      2. Raising capital is not an option imo given their share price and the number of outstanding shares. Increasing the debt can only go so far since your credit line is based on your reserves value.

      3. Very tough to meet 6,000 boepd this year. so I agree with you.

      4. I bailed out shortly after breaking $1, their WF results would have to be VERY ENTICING in order for me to consider getting back in. Like I said, there are other companies with better short term prospects.

      5. At this point, I don’t believe they can sell for much and if they did the insiders would lose a ton of their money.

      Cheers,

      Mich

  • Chris

    Thanks Mich as a follow-up

    1. I will contact management directly and hope they respond.

    2. Agreed – So to get the debt limit raised they would have to book more reserves.

    3. So why haven’t they revised guidance? The sooner they did it the better. Delaying bad news isn’t good.

    4. Would you be so kind as to privately (or publicaly) let me know what other companies have better short term prospects? How good would the WF results have to be? 100% gain?

    5. Novus just sold indicating the Chinese are interested in Canadian Oil again.

    Haven’t the insiders already lost a ton of money? Wade bought $400K at 1.20! 3x from the current level. There is no way he did this knowing what could have happened.

    Everyone is bailing on them – I’m shocked they didn’t see this coming and wonder what they are being told by institutions and what they are telling them.

    Can this ever go back to $1.20? $1.50? $2.00? – I can’t believe a stock that comfortably was at $1.50 – $2.00 range has hemoraged this much solely on the debt levels which are still reasonable and manageable.

    Why isn’t the NCIB happening? Makes me wonder if the’ve done a re-think of where best to spend the money.

    Thanks – Appreciated.

    • Mich

      3- I wonder the same thing, what do they see that we don’t?

      4- here’s a couple of examples: MQL recently traded 10% of it’s shares in a short period of time. They have 2 high profile wells coming up and results of their disposition program. This could pop the stock in the near term.

      TVE is another one to look at, prior to SHR acquisition, they were getting closer to free cash flow. Have to target a new entry price as I exited prior to the takeover.

      5- Novus didn’t get that much of a premium, a bit sad!

      6- Can PRY move above $1? it’s always possible, but how long is this going to take? Remember the stock used to trade at a huge premium and right now it lost it at least for several quarters.

      Cheers,

      Mich

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