Prairie Provident Resources
(TSX: PPR)
(OTC: PRPRF)
CEO and President: Tim Granger
Podcast: Play in new window
INTERVIEW TRANSCRIPTS:
WSA: Good day from Wall Street, this is Juan Costello, Senior Analyst of The Wall Street Analyzer. Joining us today is Tim Granger, the CEO for Prairie Provident Resources. The company trades on the Toronto Stock Exchange, ticker symbol is PPR and here in the US, PRPRF. Thanks for joining us today there, Tim.
Tim Granger: Thanks very much Juan.
WSA: So starting off, please give us a history and overview of the company for some of our listeners here that are new to your story?
Tim Granger: Sure. So Prairie Provident is the outcome of a merger between Lone Pine Resources, which was a private company and Arsenal Energy, which was a publicly traded company on the Toronto Exchange. We completed this merger, RTO if you will, on September 12 of this year, started trading a few days later and have been trading now for, just coming up on 2 to 3 months. Arsenal was a company that had been focused mainly in Western Canada and had a large US asset base that it sold prior to us merging with the entity, and Lone Pine was a private company that had assets in Western Canada that were synergistic with Arsenal, and some additional assets in Northern Alberta that were all time subsidies with Arsenal but not quite to the same extent.
WSA: Sure, so bring us up to speed there on some of your recent news, including Q3 results?
Tim Granger: Yes, we released our Q3 results just a number of weeks ago and those results mainly reflected Lone Pine. We only had two weeks of Arsenal in those results, but really the outcome of that, the more important story out of the Q3 result was our outlook for 2017. So we put out a variable budget depending on commodity prices. If you recall back to early November, when we released it, commodity prices were in a bit of a state of flux. So when we look forward to 2017, we anticipate that our average annualized production rate could vary between 5300 BOEs a day and 5800 BOEs a day, depending on which budget we went forward with, $25 million or $35 million budget. That would be a significant increase to our estimated annualized production rate for this year, which would be somewhere about 3800 BOEs a day. So some significant growth for the company in the coming year and with the way commodity prices have moved of late, with the recent announcement from OPEC, we are probably trending to the higher case budget. So, the 5800 BOEs a day which we have an exit rate somewhere north of 6000.
Juan Costello: Great, and what are the key trends that you’re focusing on right now in the sector and how are you positioning the company to capitalize?
Tim Granger: Well, the key trends for us, obviously, we’re always very focused on commodity prices. As an entity we have a very rigorous stewardship program where we have to have a minimum rate of return, like we have to be above 20% even to contemplate a project. And we like to be closer to 30% to 35% obviously on a rate of return. So we’re obviously focused on commodity prices. With the recent run up, that’s a positive for us, but there is always some concern that the deal from OPEC won’t last. So we’re looking at potential hedging to protect ourselves. We have a very strong hedge book as we speak, but to augment that with some more callers that are higher level, which is protect the economics and protect your balance sheet. From a growth perspective, we’re really in a fortunate position that we have two avenues that we can run under.
So, we are a well-capitalized junior E&P, $55 million line that is essentially untouched, might be drawn to the extent of, maybe 10-ish million dollars by year end. And so we can play the organic growth, as they indicated and take ourselves up to close to 6000 BOEs a day through next year. The other alternative is to lever our balance sheet and look at potential mergers or acquisitions like we did with Arsenal to grow ourselves up more acquisitively and a little faster through the coming years. So, we are in discussions with a number of entities, who maybe don’t quite have as strong a balance sheet and are a little more capital constrained and if those entities are in areas that we’re interested in and they’re interested in some form of a merger, then we are definitely looking forward to potentially advancing our growth along those lines as well. And so, a very good position to be in as an entity with the strong balance sheet, it opens up opportunities, like I said, whether we’re organic or acquisitive, growth seems to be within our wheel house right now.
WSA: Sure. And what are some of the other factors that you feel make PPR unique from some of the other players in the sector?
Tim Granger: Well, I think if you were to look at the PPR compared to a bunch of other small juniors, we are at 5000 BOEs a day now. That is much too small. There is no discussion. We have to get to the term that we look internally as we have to get to 10,000 and that just gets us more attention, whether it be Wall Street or Bay Street. And so really driving to get ourselves to a larger scale and the sooner the better, but what differentiates us really is like I said, one, we’ve got this good balance sheet, so lots of liquidity, we don’t need to go to the market to have organic growth or acquisitive growth. We have the funds internally to manage that today. We also have, which sets us apart from other juniors, a very strong land position. So a lot of juniors, they’ve got maybe a good land position and they got a year or two years of the same drilling and then they have to go find another area to develop. We are three to five years of sustained drilling.
If you take sustained drilling, $30-ish million a year, we have three to five years of that. So we can grow our company without having to do another deal, either to raise equity or without having to do a deal to get more land. It doesn’t mean we won’t try to obtain more land, but it’s not a necessity for us. So, we definitely control our own destiny and just to make sure that we are very prudent with our balance sheet and really focused on the stewardship. So we are being successful. Probably, the biggest challenge that we have with an entity is our shareholder base. Because we were private and gone public, we have a large segment of our shareholder base [that] is owned by a specific fund, the Goldman Sachs fund. They own about 48% of us. And that’s not negative in the sense that they’re not in rush to go away and they are smart people, so they’re not going to dump into the market, but what it does it’s hurting us from a liquidity point of view. So we view that solving our size problems, getting to 10,000 through M&A or it will also help solve our liquidity problem. So those two solutions can somewhat go hand in hand, but that is probably our largest challenge right now.
WSA: Right, and perhaps, you can talk about some of the upcoming goals and milestones that you’re looking to accomplish over the course of the next six or twelve months?
Tim Granger: Over the next, if I were to go out 6 months to 12 months, what people should look if they’re trying to understand us, if you will, is continued growth. So we will exit the year, 2016, around 5000 BOEs a day. And so if you looked at it through Q1 or Q2 of next year, you should see us approaching the mid-5000s towards 6000 BOEs a day, that’s the same growth. With that production growth added cash flow, so that would be something you could watch for. We are in discussions with a number of entities now that would hopefully bear fruit for us to grow acquisitively, but there’s a long way between discussion and success, but we’re in those discussions now. So that might be an opportunity, but a little less than our control and then finally just watch us that we would always maintain a prudent balance sheet and we have a hard deadline that we don’t want to see our debt to cash go above. And so you might get slight fluctuations round that for a quarter or two as you just adjusted your cash balances, but over the long run, we’ll always maintain a very prudent balance sheet.
WSA: And please talk about your background and experience, Tim as well as some of the key management team there?
Tim Granger: Okay. Let me start off with the management team. So like with the merger of Arsenal, their CEO and President, Tony van Winkoop, he decided that he would join us. I’d known Tony from the past role at a company called Primewest Energy Trust. Back then, Tony was running all the development for the companies that I was the CEO of. And so definitely, I have a lot of understanding of Tony’s abilities to deal with asset development and was really happy to be chosen to join. So, a great addition for us. In addition, Gjoa Taylor, she joined us from Arsenal, the VP of Land, with our focus on M&A going forward. We definitely needed some help on that side and she’s had a lot of experience and success at Arsenal and prior. So we’re happy that she joined us, who was already on board with Lone Pine, part of forming Prairie Provident.
Our VP of Operations, Bob Guy, we hired Bob about a year ago and really strong operational background. Bob has been instrumental in dropping our drilling costs in the Wheatland area, one of our primary focus areas from about $2.4 million drill case and tie-in to right now, we’re around $1.5 million and that’s through a combination of redesign of the wells and running pad drilling. So Bob has brought a lot of our focus and attention to our cost structure.
And then Mimi Lai, she’s our CFO. Mimi joined the company, Lone Pine, prior to going through its restructuring; very strong stewardship background, great modeling background. So we definitely have a clear path going forward as to what our expectations should be. And with the stewardship that she helps bring, we can manage ourselves going forward quite strongly. Myself, what I bring to the table, I’ve got a pretty unique background. I’ve got a strong background on asset development and M&A. That was developed when I was Chief Operating Officer at Primewest Energy Trust. That company, I joined them in the late 90s, stayed with them till we sold the company to TAQA in 2008 and was part of the team that grew that company from about 10,000 BOEs a day to about 60,000 BOEs a day. Stayed with TAQA, after the sale to them, as their general manager helped them through the integration, but at the back end of that, I decided that it wasn’t the company for me and I left the organization. But through that experience, I definitely showed a lot of skill sets and asset acquisition and asset development stewardship and managing very large development programs.
Leaving TAQA, looked for a bit of a new challenge, so I went to a company called Compton Petroleum, and joined them in ’09. They were in trouble. They had just released their management team. They were getting pressure from the banks and they’re a long-term debt holder. So they were a gas orientated company, about $1 billion in debt and looking for a solution. So I jumped into that. Back then in 2009, commodity prices were, for natural gas, 5-ish going to 9 or 7 if you will. So it looked like there was a solution. I was successful in raising $175 million to pay down debt. Sold $200 million worth of assets to pay down debt, manufactured{inaudible}for $125 million to pay down debt, but through all those steps, commodity prices, instead of going 5, 6, 7, went 5, 4, 3. So we had to take a bit more of a holistic approach. At that point in time the debt had come in from about $1 billion to about $400 million and on an EV basis, the shareholders at the time owned about 25% of the company. So convinced the debt holders, which were long-term debt holders that they should convert their debt into equity, but also to that convinced them that the existing shareholders had to maintain a 25% ownership. Brought that on side, spun into a new entity, they brought in a new board at that point, the new large shareholders, the debt holders bought in a new board. And I chose to leave the company. And so I left the company, potentially set up to run, and went out looking for other opportunities.
Fast forward to 2013, I joined Lone Pine, a board member at Lone Pine was a board member, I worked with at Compton. Lone Pine was in some level of distress and he wanted to know if I can come and help them work it out. Showed up with Lone Pine, took them through a workout, how to go private, and are now back public and so hopefully the shareholders of Lone Pine will — the new shareholders of Lone Pine will be able to reap the benefits of the restructured company through Prairie Provident. So my background, really, strong operational background, M&A background and stewardship and also can definitely run up and down a balance sheet and know that the need to keep a strong eye on your economics, a strong eye on your cash flows and maintain a low debt to cash number. So that’s of the management team and I think we’re well positioned to grow this company and show success for our shareholders going forward.
WSA: Sure, and I think you had touched on this early in the interview, but what are some of your key drivers that you wish investors better understood about?
Tim Granger: I think that the key things that set us apart that differentiate us positively, number one is our balance sheet. Like I said, with $55 million line that might be drawn to $10 million by the end of this year and a strong focus that we will maintain a debt to cash number of no greater than one. So we are very prudently managed and we have a strong balance sheet, so we can grow the company organically without coming to the market for equity raises. So that’s one. The second thing that differentiates us positively again is our large land position. Unlike a lot of juniors that have maybe a year or two of development in front of them and then they have to go find something else, we have about five years of sustained development, if you take, 30-ish million dollars of sustained development, about five years in front of us. So we can grow this company organically, without having to go out and acquire a new land position.
That’s not to say we won’t. We have a strong desire to continue to grow our company, both organically and accretively, but we’re not beholden that we got to do a deal and so potentially do a challenging deal. So those are the two real differentiating factors in our favor if you will. The one challenging factor is when we were private and then going public, one of our large private shareholders owns about 48% of Prairie Provident. Smart investor, he’s not going to blow things up, he’s not of that ilk. If you read the press release that we put out when we announced Prairie Provident and the merger with Arsenal, he made a very clear statement that basically understood the acquisition, understood that this was one of many steps, so there would be more potential accretive acquisitions going forward and that will {yield} long-term money. So he’s prepared for us to do more deals and hopefully dilute him down economically. So he can be in a better position and we can have a better position for our shareholder base. But today, it does create some challenges because of a lack of liquidity.
WSA: So once again joining us today is Tim Granger, the CEO for Prairie Provident Resources, which trades under the Toronto Stock Exchange, ticker symbol, PPR and here in the US, PRPRF. Currently trading at $0.58 a share US and market cap is about $57 million. Before we conclude here, to recap some of your key points, why do you believe investors should consider the company as a good investment opportunity today?
Tim Granger: I think one of the key attributes that we have from an investment point of view is just our current share price, CAD 0.77. If you looked at a metric, so whether you want to look at the price to cash, looking for the next year’s cash flow, we’d be trading somewhere three times or lower. So we’re relatively inexpensive if you will and I would get that being a problem, if we had a debt issue or we didn’t have economic development today. But being that sheet, when we have no debt issue and all our plays are vastly economic today, 30 plus percent in the current forward strip, it would seem that we would be a relatively inexpensive investment to get into.
WSA: Well, we certainly look forward to continuing to track the company’s growth and report on your upcoming progress. And we’d like to thank you for taking the time to join us today Tim and update our investor audience on Prairie Provident. It was great having you on.
Tim Granger: Thanks very much. I will appreciate the time.
