Talisman and Painted Pony – updates

Eagle Ford on the horizon?

Look at that trading range with an $11 base and
$13 ceiling. What’s the catalyst to take it
beyond that $13? Carl Icahn & American

Call it a comeback? Shares of TLM jumped after
the company posted strong Q1/14 earnings, driven
by higher North American gas and liquids prices,
increased liquids volumes and a gain on the sale of
assets. Additionally, Q1/14 production of 384
MBOE/d (includes assets held for sale) was also
above expectations. The EPS beat Skolnick’s (CG)
estimate was a result of better-than-expected
production as well as lower-than-forecast royalties
and unit op-costs. Having reached the lower end of
the prior US$2-3 billion in targeted divestments
faster than the expected 18 month timeline,
management remains confident in hitting its next
US$2 billion target. Furthermore, according to a
Bloomberg article, both TLM and its 50% JV
partner, Statoil (STO), are considering selling
their joint venture in the Eagle Ford, which
could fetch more than US$4 billion total


Shares of Painted Pony Petroleum are down from their $12.14 highs of last month. PPY reports Q1/14 results on Tuesday, May 13 (after market close). Canaccord Genuity Energy Analyst Anthony Petrucci is expecting a positive operational update, including robust production numbers, further color on improved completion techniques and likely an increased bank line. This is a company that expects to increase production by 50% per share this year and another 60% per share next year. Recent production numbers suggest they are ahead of their forecast pace. The company’s five-year plan has them reaching 100,000 boe/d in 2018 (current production of ~13,500 boe/d). They could potentially reach that level just by drilling
on existing drilling pads, and would only have drilled <15% of potential drilling locations.

Given the company’s forecast production next year of 20,500 boe/d, Petrucci says PPY is now trading at just 5.7x 2015 EV/DACF.

Recent well performance is well ahead of type curve (~30% better) given an adjustment
in completion techniques. The biggest risk to PPY’s model is natural gas prices, as the geological risk has been significantly reduced given the extensive delineation drilling the company undertook prior to its development drilling program. If natural gas prices hold in Petrucci believes PPY will be successful in reaching its lofty production targets.



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