Painted Pony Petroleum Ltd.

Painted Pony Petroleum Ltd.

December 04, 2012 08:04 ET

Painted Pony Announces Strategic Northeast BC Montney Asset Acquisition and $150 Million Bought Deal Common Share Equity Financing

CALGARY, ALBERTA--(Marketwire - Dec. 4, 2012) -


Painted Pony Petroleum Ltd. ("Painted Pony" or the "Company") (TSX VENTURE:PPY) is pleased to announce that it has entered into a purchase and sale agreement with an independent oil and gas producer (the "Vendor") to acquire certain assets and lands in the Kobes area adjacent to Painted Pony's core Montney project in Northeast British Columbia ("BC") (the "Kobes Assets") for $108 million, before closing adjustments and related costs (the "Acquisition").

The Acquisition represents a strategic expansion of Painted Pony's Northeast BC Montney project, adding approximately 25 contiguous sections (approximately 97% working interest) of prospective Montney lands at Kobes. As shown in the map included in this news release, the Kobes Assets are immediately adjacent to Painted Pony's core Montney position at Blair / Town and Cameron / Kobes and are located in a local "sweet spot" of the Northeast BC Montney where the liquids yields are substantially higher than regional averages. Painted Pony believes this expansion is highly strategic to the Company's already large-scale position in the Northeast BC Montney and will add more than 200 potential liquids-rich locations within three prospective intervals (Upper, Middle and Lower) of the Montney.

Painted Pony also announces that it has entered into an agreement with a syndicate of underwriters led by Cormark Securities Inc. and including FirstEnergy Capital Corp., RBC Capital Markets, CIBC, Scotia Capital Inc., AltaCorp Capital Inc. and Stifel Nicolaus Canada Inc. (collectively the "Underwriters") pursuant to which the Underwriters have agreed to purchase for resale to the public, on a bought deal basis, 14,780,000 common shares ("Common Shares") at $10.15 per Common Share (the "Offering Price") for aggregate gross proceeds of approximately $150 million (the "Offering"). Painted Pony has granted the Underwriters an over-allotment option which would increase the aggregate gross proceeds of the Offering to $172.5 million if fully exercised.


Under the terms of the Acquisition, Painted Pony has agreed to pay $108 million of cash consideration for the Kobes Assets, before closing adjustments and related costs. The Acquisition has an effective date of December 1, 2012 and is expected to close on or about December 28, 2012. The completion of the Acquisition is subject to certain conditions, including normal regulatory approvals.

Key Attributes of the Kobes Assets:

  • Approximately 25 contiguous net sections of land including all of the Montney rights (approximately 15,800 net acres)
  • Approximately 97% average working interest overall, with 22 sections at 100% working interest
  • Average production of approximately 925 boe/d from the Montney during the period from January to August 2012 (34% liquids); most recent reported production of approximately 700 boe/d (August 2012)
  • Liquids yield averaged approximately 84 bbls/MMcf during the period from January to August 2012, including an average of 21 bbls/MMcf of free condensate
  • Four (3.875 net) Montney wells drilled to date on the Kobes Assets, including:
    • 2 (1.875 net) Lower Montney horizontal wells currently on production
    • 1 (1.0 net) vertical well producing from the Montney
    • 1 (1.0 net) Lower Montney horizontal well which has been drilled by the Vendor and is awaiting completion. Painted Pony plans to frac and complete the well in early 2013, following closing of the Acquisition
  • Average thickness of the Montney on the Kobes lands is approximately 300 metres (1,000 feet) with identified potential for horizontal development in each of the three Montney intervals (Upper, Middle and Lower)
  • Proved plus probable reserves at December 31, 2011 of approximately 11.9 MMboe (see "Reserves Summary" below)
    • Reserves assigned to date reflect partial bookings related to less than 4 of the approximately 25 net sections of the Kobes Assets
  • All of the Kobes Assets reside in the region of Northeast BC which receives the benefit of preferential royalties with the average Montney horizontal well receiving a royalty credit equivalent to approximately $2.2 million

Reserves Summary

The following is a summary of the independent reserves evaluation prepared in relation to the Kobes Assets by GLJ Petroleum Consultants Ltd. for the Vendor effective December 31, 2011:

  • Approximately 3.5 MMboe of proved reserves and 11.9 MMboe of proved plus probable reserves
  • Net present value (discounted at 10%) of approximately $47.1 million for proved reserves and $125.5 million for proved plus probable reserves, based on the commodity price forecasts of GLJ Petroleum Consultants Ltd. effective January 1, 2012

Strategic Rationale

Painted Pony believes the Acquisition represents a significant advancement of its business strategy to develop its world-class Montney gas asset for the following reasons:

  • Recent Montney-related transactions have highlighted the importance of large, contiguous Montney gas resource positions to global consolidators
  • The Acquisition expands Painted Pony's contiguous Montney land position by more than 15% to nearly 185 net sections (approximately 72% average working interest overall)
  • The Acquisition further positions Painted Pony as having one of the largest, contiguous Northeast BC Montney land blocks of any independent company operating in the area
  • The Kobes Assets, together with Painted Pony's existing core Montney position are ideally situated along Spectra's main T-North line, the primary supply point for the recently announced, planned pipeline projects to supply Canada's planned west coast LNG export projects at Kitimat and Prince Rupert
  • High liquids yields of the Kobes Assets provide Painted Pony with attractive well economics in today's commodity price environment
  • The contiguous nature of the Kobes Assets and immediate offset to Painted Pony's existing lands provide for substantial operational efficiencies and flexibility.

To view the map associated with this press release, please visit the following link:

The map contained in this news release may also be accessed on Painted Pony's website at

Financial Advisor

Cormark Securities Inc. is acting as exclusive financial advisor to Painted Pony with respect to the Acquisition.


Painted Pony also announces that it has entered into an agreement with the Underwriters pursuant to which the Underwriters have agreed to purchase for resale to the public, on a bought deal basis, 14,780,000 Common Shares at $10.15 per Common Share for aggregate gross proceeds of approximately $150 million.

Painted Pony has granted the Underwriters an option (the "Over-Allotment Option") to purchase up to an additional 2,217,000 Common Shares exercisable at the Offering Price in whole or in part at any time until 30 days following the date of closing of the Offering for additional gross proceeds of up to $22.5 million which would increase the Offering to aggregate gross proceeds of $172.5 million if fully exercised.

The net proceeds of the Offering will be used to fund the Acquisition, to partially fund ongoing capital expenditures, potential future acquisitions and for other general corporate purposes.

The Common Shares shall be offered in all provinces of Canada (other than Quebec) by way of short form prospectus. The securities offered have not been registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The closing of the Offering is expected to occur on December 21, 2012, and is subject to certain conditions, including, but not limited to, the receipt of all necessary regulatory approvals, including the approval of the TSX Venture Exchange. Closing of the Offering is not conditional upon closing of the Acquisition.


As previously disclosed, Painted Pony exited the third quarter of 2012 with no bank debt, a positive working capital position of $20.3 million (including cash and cash equivalents of $40.5 million) and an undrawn demand credit facility of $100 million prior to any incremental borrowing capacity resulting from the Acquisition or that may result from recent drilling success, increased production and expected reserves additions across the Company.

The financing plan for the Acquisition and ongoing operations is consistent with Painted Pony's history of prudent financial management and provides increased financial flexibility going forward.


Painted Pony also advises that it has entered into a separate, non-binding letter of intent with an independent oil and gas producer to acquire certain producing oil and gas properties and undeveloped land in an emerging light oil resource play in Alberta for approximately $25 million. A definitive purchase and sale agreement has not yet been agreed to in respect of this acquisition, and no assurances can be made that the acquisition will be completed as currently contemplated. Subject to finalization of due diligence, documentation and approvals customary for a transaction of this type, Painted Pony currently expects this acquisition to be completed in the first quarter of 2013.

Retirement of Chairman of the Board of Directors

Painted Pony also announces that Mr. Ronald Talbot has notified the Board of Directors of his intention to retire as Chairman of the Board and one of its Directors effective December 31, 2012. Mr. Talbot was a founding Director of Painted Pony and has served as its Chairman since the inception of the Company in 2007. The Board would like to thank Mr. Talbot for his substantial contributions to Painted Pony and wish him well in his retirement.

The Board has elected Mr. Glenn Carley to succeed Mr. Talbot as Chairman effective December 31, 2012. Mr. Carley has also been a Director of Painted Pony since its inception and will continue in this role in addition to taking on new responsibilities as Chairman of the Board.

Painted Pony is a junior Canadian oil and gas exploration company that trades on the TSX Venture Exchange under the symbol "PPY".

For more information please visit


Certain information regarding Painted Pony set forth in this news release, including the timing and completion of the Acquisition, the characteristics of the Kobes Assets, the timing and completion of the Offering, the use of proceeds of the Offering, the increase to Painted Pony's credit facility, and Painted Pony's exploration and development plans and anticipated operations, may constitute forward-looking statements under applicable securities laws and necessarily involve substantial known and unknown risks and uncertainties. These forward-looking statements are subject to numerous risks and uncertainties, certain of which are beyond Painted Pony's control, including without limitation, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, loss of markets, industry conditions, volatility of commodity prices, environmental risks, the lack of availability of qualified personnel or management, inability to obtain drilling rigs or other services, capital expenditure costs, including drilling, completion and facility costs, unexpected decline rates in wells, wells not performing as expected, stock market volatility, delays resulting from our inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources, the impact of general economic conditions in Canada, the United States and overseas, changes in laws and regulations (including the adoption of new environmental laws and regulations) and changes in how they are interpreted and enforced, increased competition, fluctuations in foreign exchange or interest rates, stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof. Painted Pony's actual results, performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits, including the amount of proceeds, that the Company will derive therefrom. Readers are cautioned that the foregoing list of factors is not exhaustive. All subsequent forward-looking statements, whether written or oral, attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements.

Additional information on these and other factors that could affect Painted Pony's operations and financial results are included in reports on file with Canadian securities regulatory authorities and may be accessed through the SEDAR website ( or Painted Pony's website (

The forward-looking statements contained in this document are made as at the date of this news release and Painted Pony does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

Any references in this news release to test rates are useful in confirming the presence of hydrocarbons, however, such rates are not necessarily indicative of long term performance or ultimately recovery. While such rates are encouraging, readers are cautioned not to place reliance on such rates.

Any references in this news release to undiscounted or discounted net present values of future net revenue do not represent the fair market value of the reserves.

The term barrels of oil equivalent ("boe") may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of natural gas to one boe (6 mcf/bbl.) is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. All boe conversions in this report are derived from converting gas to oil in the ratio of six thousand cubic feet of gas to one barrel of oil. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency of 6:1, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this news release.

Contact Information

  • Painted Pony Petroleum Ltd.
    Patrick R. Ward
    President & CEO
    (403) 475-0440
    (403) 238-1487 (FAX)

    Painted Pony Petroleum Ltd.
    Joan E. Dunne
    Vice President, Finance & CFO
    (403) 475-0440
    (403) 238-1487 (FAX)

    Painted Pony Petroleum Ltd.
    300, 602 - 12 Ave SW
    Calgary, AB T2R 1J3