Painted Pony Petroleum Ltd. shares jumped 6 per cent as investors took a shine to a long-term processing deal and alliance with AltaGas Ltd. that provides both an outlet for Painted Pony's liquids-rich Montney gas as well as funding for development.
Under the deal, AltaGas will build a 198 million cubic feet a day processing plant north of Fort St. John, B.C., of which Painted Pony will have 150 million cubic feet a day of guaranteed capacity. The $350-million plant is expected to be in service by the end of next year.
AltaGas will be the main marketer of Painted Pony's gas and gas liquids, and the gas supply will play into AltaGas's West Coast liquefied natural gas and gas liquids export efforts, the companies said. AltaGas currently processes about 50 million cubic feet a day of Painted Pony's gas at one of its existing B.C. plants.
In addition, AltaGas will buy 4.2-million Painted Pony shares at $12 apiece for proceeds of $50-million.
The deal removes two key risks for Painted Pony. It has been successful so far in drilling on its B.C. Montney lands, which total 129,800 acres, but the company has had limited ability to move the supplies out of the field due to transport constraints.
Also, with the private placement of shares and $100-million of proceeds from a sale of Saskatchewan assets, announced in July, the company's development efforts are fully funded for the next five years, said Cody Kwong, analyst at FirstEnergy Capital Corp. The company has projected production of 111,000 barrels of oil equivalent a day by 2018, up from an estimated 13,500 this year.
Painted Pony estimates it will have no net debt by the end of this year.