​Why Painted Pony is cutting its 2017 and 2018 capital spend

Painted Pony Petroleum CEO Pat Ward. Image: Shaun Robinson/JWN

Painted Pony Petroleum announced this week it would reduce its capital spending going forward, citing the recent decline in forward strip natural gas prices.

The cuts come at a time when other producers are ramping up their spending, but it’s not all apples to apples.

“Painted Pony believes these steps will help retain financial flexibility for the corporation while delivering attractive production and cash flow per share growth,” the company said in a statement.

Painted Pony reduced its 2017 capital spending to $288 million from its previously announced capital budget of $319 million. It also cut its 2018 capital spend to $216 million, down from previous 2018 capital spending indications of $385 million, as outlined in Painted Pony's five-year plan.

Cody Kwong, GMP FirstEnergy’s managing director of institutional research, notes that capital spending programs have generally increased among producers focused on oil in response to much-improved pricing compared to last year.

“[Also] you might have seen increased capital budgets from [natural gas producers] in the U.S., where they don't have the downside of using the Canadian/US pricing differential,” he said. “We get significantly discounted gas prices here in Canada.”

Kwong suggests that Painted Pony's spending is in sync with other Canadian natural gas producers.

“If you look at our commodity price forecast, we would have a relatively bullish view when you compare them to the current [natural gas] strip price,” he added. “[Painted Pony is] just being prudent and pulling back their capital. They can still offer one of the best production per share growth markers in the intermediate space and yet spend less capital.”

Painted Pony is currently expecting 2017 annual average daily production of approximately 260 MMcfe/d (43,000 boe/d), an 85 per cent production per share increase over 2016 annual average daily production of 139.2 Mcfe/d (23,204 boe/d).

The company anticipates drilling 58 net wells and completing 51 net wells as part of its 2017 capital program.

Kwong notes that Painted Pony originally outlined its 2017 and 2018 capital budgets a couple of years ago when it rolled out a five-year plan.

“This is part of that, and they're trying to follow that as best as they can while reacting to lower gas prices.”