$PEA DD: massively undervalued gas play - 8-14x fair value at current gas prices IMO (updated)

First let me start off by stating that I'm NOT an investment advisor and this is just my opinion. Please do your own research and invest accordingly. If anyone has any criticism or constructive feedback regarding this DD I would welcome the discussion. Company profile Pieridae Energy Limited is a microcap (market cap currently at $152M) petroleum and natural gas company located in Canada and currently listed on the TSX and OTC. The company owns natural gas facilities, primarily in the Western Canadian foothills, and engages in the exploration, development, and production of gas, oil, sulphur, and natural gas liquids (primarily gas). As of Q4/2021 their production is about 41K boe/d @ 82% gas. They also have facilities revolving around becoming a Liquified Natural Gas ("LNG") producer in Nova Scotia which are currently suspended to my knowledge. The company was founded in 2011 and is headquartered in Calgary, Canada. 5-year price history and current opportunity A possible explanation as to why the price went from $0.17 in 2017, way up to $5 in 2018, down to $1 in 2019, $0.50 in 2020, and finally up to $1.09 as of yesterday's close. Pieridae was founded in 2011 but Pieridae Energy was formed on on October 24, 2017 with the amalgamation of Pieridae Energy Limited and Petrolia Inc. That plus hype around Pieridae's "The Goldboro LNG Project" caused the stock to soar to $5. Then in Feb 17, 2018 they announced plans to aquire a loan up to $10B for the LNG project. I suspect that plus tumbling AECO gas prices ($1.50/Gj) caused the stock to start falling in 2018 because the loan would have been 10-15x their market cap at the time. Though an aquisition of Ikkuma Resources in late 2018 caused the stock to resurge to $4.50. In late 2019, Pieridae acquired Shell's Foothills assets and increased production from about 20K boe/d to 40K boe/d but it never really caused a price jump perhaps due to low commodity pricing. On June 30, 2021 they suspended the entire LNG project after failing to meet key conditions. As a result of that and low commodity pricing the stock fell to 5-year low of $0.26 in the Summer of 2021. Fast forward to today, the company is focused on optimizing and growing it's E&P business with LNG project on the backburner. Bottom line now is there is a major opportunity to jump on this sentiment shift plus the incredible rise in AECO pricing (gas) which is 82% of their production. AECO pricing was about $2/Gj in 2020, $3.5/Gj in 2021, and as of April 25 $6.80/Gj with 12 month strip pricing at about $6/Gj. Key statistics (Q4) The following stats are mostly from their most recent Q4 report: Share price (April 26): $0.97 Production: 41,304 boe/d @ 82% gas Shares outstanding: 158M Market cap: $152M Net debt: 205M Enterprise value: $357M Debt-to-EV ratio: 0.58 Adjusted funds flow (AFF): $23.3M Free cash flow (FCF): $21.6M Reference Production history 2018 - 17,509 boe/d 2019 - 22,397 boe/d 2020 - 42,000 boe/d 2021 - 40,562 boe/d 2022 Guidance Production: 39,000 – 42,000 boe/d Capital expenditure: $34M - $47M Hedging: approx. 44% of expected production hedged at CAD$2.92 Reference Insane AECO gas prices Latest AECO gas price is $6.80/Gj 12-month strip is approx. $6/Gj For comparison AECO benchmark prices in 2021 and 2020 was about $3.50 and $2, respectively. Reference Recent price performance +15% in the past 30 days +137% in the past 6 months Incredible fair value A word of caution: I'm not an investment advisor, this is just my opinion. These are my own calculations and they can vary based on the methods and data used in the calculation, there is also a possibility of human error. Please do your own research and invest accordingly. The following is based on their latest Q4 production and uses current 12-month strip prices of: AECO gas @ CAD$6/Gj, WCI oil @ US$93/bbl, NGL oil @ US$50/bbl. The calculation uses Q4 Free Cash Flow x 8 multiple. $PEA could see Free Cash Flow up to $190M in 2022. A 1070% increase over 2021 and 53% FCF Yield at strip! Consider the significant increase in gas prices isn't proportional to their profits - instead the increase will be pure profit as their operating expanses remain about the same. Fair value estimate: $8.66 (2022 hedged) $14.05 (2022 unhedged) Please note this fair value was calculated using White Tundra's valuation spreadsheet located here. Making sense of the high fair value: A few possible reasons $PEA has been trading much lower than fair value to-date: (1) Microcaps often trade much lower than their valuation due to the volatility of being a microcap, however given current high commodity pricing this company shouldn't even be a microcap IMO. (2) Fear of the company continuing (or restarting as it's currently suspended) the LNG project and incurring significant capital expenses and debt may have dissuaded many investors previously. (3) There's a general fear of the fall to pre-2021-2022 commodity prices (gas in this case) which in my opinion isn't going to happen anytime soon. (4) Their debt-to-EV ratio is high but given high commodity prices it shouldn't even be a concern. Full Disclosure I currently hold 7500 shares on the TSX.

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$PEA DD: massively undervalued gas play - 8-14x fair value at current gas prices IMO (updated)

Apr 27, 2022

bullish

general Analysis

[4 min Read]

First let me start off by stating that I'm NOT an investment advisor and this is just my opinion. Please do your own research and invest accordingly. If anyone has any criticism or constructive feedback regarding this DD I would welcome the discussion.

Company profile

Pieridae Energy Limited is a microcap (market cap currently at $152M) petroleum and natural gas company located in Canada and currently listed on the TSX and OTC. The company owns natural gas facilities, primarily in the Western Canadian foothills, and engages in the exploration, development, and production of gas, oil, sulphur, and natural gas liquids (primarily gas). As of Q4/2021 their production is about 41K boe/d @ 82% gas. They also have facilities revolving around becoming a Liquified Natural Gas ("LNG") producer in Nova Scotia which are currently suspended to my knowledge. The company was founded in 2011 and is headquartered in Calgary, Canada.

5-year price history and current opportunity

A possible explanation as to why the price went from $0.17 in 2017, way up to $5 in 2018, down to $1 in 2019, $0.50 in 2020, and finally up to $1.09 as of yesterday's close. Pieridae was founded in 2011 but Pieridae Energy was formed on on October 24, 2017 with the amalgamation of Pieridae Energy Limited and Petrolia Inc. That plus hype around Pieridae's "The Goldboro LNG Project" caused the stock to soar to $5. Then in Feb 17, 2018 they announced plans to aquire a loan up to $10B for the LNG project. I suspect that plus tumbling AECO gas prices ($1.50/Gj) caused the stock to start falling in 2018 because the loan would have been 10-15x their market cap at the time. Though an aquisition of Ikkuma Resources in late 2018 caused the stock to resurge to $4.50. In late 2019, Pieridae acquired Shell's Foothills assets and increased production from about 20K boe/d to 40K boe/d but it never really caused a price jump perhaps due to low commodity pricing. On June 30, 2021 they suspended the entire LNG project after failing to meet key conditions. As a result of that and low commodity pricing the stock fell to 5-year low of $0.26 in the Summer of 2021. Fast forward to today, the company is focused on optimizing and growing it's E&P business with LNG project on the backburner. Bottom line now is there is a major opportunity to jump on this sentiment shift plus the incredible rise in AECO pricing (gas) which is 82% of their production. AECO pricing was about $2/Gj in 2020, $3.5/Gj in 2021, and as of April 25 $6.80/Gj with 12 month strip pricing at about $6/Gj.

Key statistics (Q4)

The following stats are mostly from their most recent Q4 report:

  • Share price (April 26): $0.97
  • Production: 41,304 boe/d @ 82% gas
  • Shares outstanding: 158M
  • Market cap: $152M
  • Net debt: 205M
  • Enterprise value: $357M
  • Debt-to-EV ratio: 0.58
  • Adjusted funds flow (AFF): $23.3M
  • Free cash flow (FCF): $21.6M

Reference

Production history

  • 2018 - 17,509 boe/d
  • 2019 - 22,397 boe/d
  • 2020 - 42,000 boe/d
  • 2021 - 40,562 boe/d

2022 Guidance

Production: 39,000 - 42,000 boe/d

Capital expenditure: $34M - $47M

Hedging: approx. 44% of expected production hedged at CAD$2.92

Reference

Insane AECO gas prices

  • Latest AECO gas price is $6.80/Gj
  • 12-month strip is approx. $6/Gj

For comparison AECO benchmark prices in 2021 and 2020 was about $3.50 and $2, respectively.

Reference

Recent price performance

  • +15% in the past 30 days
  • +137% in the past 6 months

Incredible fair value

A word of caution: I'm not an investment advisor, this is just my opinion. These are my own calculations and they can vary based on the methods and data used in the calculation, there is also a possibility of human error. Please do your own research and invest accordingly.

The following is based on their latest Q4 production and uses current 12-month strip prices of: AECO gas @ CAD$6/Gj, WCI oil @ US$93/bbl, NGL oil @ US$50/bbl. The calculation uses Q4 Free Cash Flow x 8 multiple.

$PEA could see Free Cash Flow up to $190M in 2022. A 1070% increase over 2021 and 53% FCF Yield at strip! Consider the significant increase in gas prices isn't proportional to their profits - instead the increase will be pure profit as their operating expanses remain about the same.

Fair value estimate:

  • $8.66 (2022 hedged)
  • $14.05 (2022 unhedged)

Please note this fair value was calculated using White Tundra's valuation spreadsheet located here.

Making sense of the high fair value:

A few possible reasons $PEA has been trading much lower than fair value to-date: (1) Microcaps often trade much lower than their valuation due to the volatility of being a microcap, however given current high commodity pricing this company shouldn't even be a microcap IMO. (2) Fear of the company continuing (or restarting as it's currently suspended) the LNG project and incurring significant capital expenses and debt may have dissuaded many investors previously. (3) There's a general fear of the fall to pre-2021-2022 commodity prices (gas in this case) which in my opinion isn't going to happen anytime soon. (4) Their debt-to-EV ratio is high but given high commodity prices it shouldn't even be a concern.

Full Disclosure

I currently hold 7500 shares on the TSX.

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PEA.TO

Pieridae Energy Limited

1.13

-0.08
-6.61%

Return

14.14%
Change % Since Posting
0.14
Change Since Posting
0.99
Price When Posted

Metrics

8.66
Target Price
9/ 10
Confidence
2-6 Months
Timeframe
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