Penn West Petroleum Ltd. is on the verge of making good on one of its summer pledges – to trim debt.
The company said Wednesday it has “agreements in principle” in place with several parties to sell undisclosed assets.
Penn West expects the deals to be worth a total of $1.3-billion, within the target range is set earlier this year. The transactions are expected to close by the end of the year.
Penn West is one of Canada’s largest oil and gas companies, but investors are not interested in sprawl.
While the company did not say which specific assets it is selling, the company said “non-core” properties were on the block. This means it held tight to its growth projects, which is what many shareholders want to see as cleans up its finances.
“The balance sheet was probably getting to the higher end of the [debt] range of where they were comfortable, so certainly this was a measure to shore up the balance sheet,” Clayton Paradis, a spokesman for Penn West, said in an interview Wednesday.
“Some would argue you obviously can’t do that indefinitely. We’re fully agreed on that, but by the same token, the company is not shrinking.”
Penn West had $3.69-billion in debt at the end of June, up 31 per cent compared to the previous year.
Its dividend yield reached 7.8 per cent, calculates Gord Currie, an analyst at Salman Partners Inc. in Calgary. When compared with about 15 of its peers, only Bonavista Energy Corp. sports a higher yield, the analyst said.
“The one big knock against Penn West is they were probably overleveraged,” Mr. Currie said. “They were pushing it a bit.”
Penn West said the assets included in the deals produce about 12,000 barrels of oil equivalent per day combined. The company plans to use the money to pay down debt.
“This gets them out of the red zone,” Mr. Currie said. “Maybe not green, but certainly yellow.”
The company did not disclose the purchasers, but in an October investor presentation, the company said potential buyers could be private equity, national oil companies, well-financed junior and intermediate companies, as well as insurance companies.
“Because we do have confidentiality agreements signed and in place, and these deals are not closed, we’re highly restricted on what we can say,” Penn West’s Mr. Paradis said.
“And in fact, you really want to try and continue to extract as much value as we can out of the deal, so it is really to Penn West shareholders’ benefit that we keep quiet on this and keep the processes competitive.”
While the sales are not final, he said the company opened up because it “had been hearing a lot of speculation out there that we were having trouble getting some of these deals done.”
Negotiations are far enough along, however, the board felt comfortable making the announcement, Mr. Paradis said.
Last summer, Penn West said it planned to sell between $1-billion and $1.5-billion worth of assets. It also sliced its budget to between $1.2-billion and $1.25-billion, from $1.3-billion and $1.4-billion.
Penn West has a joint venture with China Investment Corp. on some of its bitumen assets, and the state-owned fund is also a major investor in the Calgary-based company.
The Canadian oil and gas company also rolled out new data on its reserves, noting total oil and bitumen resources could exceed one billion barrels.