Pinecrest Energy Inc. (TSX-V: PRY.VN), a petroleum and natural gas exploration, production and development company based in Calgary, Alberta, has seen a surge in activity over the past two days with trading volume surpassing the 5.4 million mark on Wednesday and 2.8 million on Thursday. The spike in volume follows a rough start to the week when they hit a low of 1.77 on Monday but by Thursday those same shares were as high as 2.24. At the moment shares of PRY.VN are trading around the 2.00 level, still well below their 50-day moving average of 2.36 as well as their 200-day moving average of 2.48.
PRY.VN’s share price began to dip following the release of their first quarter 2012 results, this despite some significant accomplishments achieved by the company. Among those achievements, the increased their average daily production (99% light oil) to 3,358 boe/d from 2,225 boe/d in the fourth quarter 2011 and from 753 boe/d in the first quarter of 2011- increases of 51% and 346% respectively; increased first quarter 2012 funds from operations by 39% to $20.3 million from $14.6 million in the fourth quarter 2011 and from $3.6 million in the first quarter 2011, a 464% increase; and reduced their first quarter 2012 production and transportation costs per boe by approximately 6.6% to $13.82 from $14.79 in the fourth quarter 2011 and from $18.04 in the first quarter 2011,a decrease of 24%.
Obviously of significant importance to PRY.VN is production and according to their May 15, 2012 report they estimate they are producing approximately 3,500 boe/d (99% light oil) from their Red Earth area of Alberta. That figure could go up markedly as that rate includes 4 gross (4 net) wells that have only been on production for approximately 2 weeks and are still in the initial clean up phase recovering completion fluids so have not yet reached their expected stabilized oil rate. Additionally, they currently have 2 gross (2 net) wells, drilled and completed in Q1, yet to be brought on production.
These factors have contributed strongly to PRY.VN maintaining its previously state guidance of achieving production of 5,000 – 5,200 barrels of light oil per day. Of course it’s not all about how many barrels of light oil PRY.VN can produce in a day that matters, pricing of those barrels is of tremendous importance as well and this is where PRY.VN has had some trouble.
As they pointed out in their financial results, “Pricing for Canadian crude has experienced significant volatility in recent months. Edmonton light has gone from trading at a premium to West Texas Intermediate (“WTI”) in the fourth quarter of 2011 to a discount in the first quarter of 2012. The volatility can be partially explained by seasonal refinery turnarounds, however, pipeline takeaway capacity and turnaround schedules in the light oil refining market have also impacted short term pricing on Canadian crude. During the first quarter of 2012, WTI pricing averaged US$102.84 per barrel and differentials on Edmonton light crude averaged $10.23 per barrel, with Pinecrest realizing a price of Cdn$92.26 per barrel. The differential has since narrowed significantly, closer to historic norms, however Pinecrest sees the potential for volatility in Edmonton light crude pricing over the next 12 to 18 months.”
This may cause some concern for investors but for long-term holders of PRY.VN this could present an opportunity to strengthen their positions as the share price could reflect the volatility with a number of dips in the future. Those dips could be followed by substantial gains if PRY.VN is capable of following through with what they outlined for the balance of 2012, that being to “execute an integrated capital program that will include drilling wells for primary production (4 wells per section), initial injection on 2-3 operated waterflood schemes and infill drilling (8 wells per section) for planned future horizontal water injection. As well, Pinecrest is in the initial planning stages for the construction of a facility and gathering system for its eastern Red Earth focus area. This investment will diminish the need for trucking, further reduce production and transportation costs and allow for more continuous production during spring break-up and wet conditions.”
“Additionally, the Company has made strategic investments in the acquisition of undeveloped land, increasing its position in the Slave Point light oil resource play through Crown land sales and asset acquisitions. Pinecrest has successfully grown its land holdings in its Red Earth core area to a current total of approximately 160,300 net acres with an average working interest of over 98%. Pinecrest currently has a risked development drilling inventory of 235 (4 wells/section) or 435 (8 wells/section) net Slave Point drilling locations. This is expected to provide the Company with six to ten years of drilling inventory at a density of four wells/section. In addition, Pinecrest operates its own production facilities and infrastructure which can allow for quick, cost effective tie-in of wells.”