The Alberta Securities Commission has ordered 11 directors and executives of Penn West Petroleum Ltd. not to trade any shares of the company until the firm has completed its review of accounting problems and has filed accurate financial statements.
The ASC said Penn West made an application for the cease-trade order, which applies to chief executive officer David Roberts, chief financial officer David Dyck, senior vice-president Gregg Gegunde, general counsel Keith Luft and all the directors on the company’s board, including chairman Rick George.
A cease-trade order is often imposed by securities regulators when companies have missed deadlines to file financial statements.
The ASC declared Penn West to be in default after the company announced last week it is reviewing accounting issues that will require a restatement of its audited financial statements for 2012 and 2013 and for the first quarter of 2014. The announcement means Penn West has not filed completed financial statements for those periods.
The company has also said there could be a delay in filing upcoming financial statements for the three months ended June 30, along with related management discussion and analysis documents.
As part of the cease-trade order, Penn West has also agreed not to issue or buy any of its own securities until the order is lifted.
The order prohibits executives and directors from buying or selling shares of Penn West, but says they will be required to continue to participate in automatic investment programs if they are already enrolled in them. The order says officials “will not make any election to enroll in, withdraw from or otherwise change the nature of his or her participation” in the plans.
For example, the officials will stay in the company’s dividend reinvestment plan, which allows dividends to be reinvested in shares of Penn West rather than paid in cash. Executives will continue to participate in the company’s share savings program if they are enrolled in the program, and directors must continue to participate in the directors’ deferred share unit plan.
The ASC said it reserves the right to vary the terms of the cease trade order at any time, including if Penn West fails to file accurate financial statements by Oct. 14. Penn West expected to complete its review and file outstanding financial statements by that date.
Penn West announced July 29 it had uncovered $281-million of accounting irregularities in 2012 and 2013, including entries that made expenses appear lower. The company’s audit committee said it had identified $70-million in operating expenses it believes were improperly classified as capital expenditures in 2013, $111-million of operating expenses misclassified in 2012 and $100-million in operating expenses incorrectly reclassified as royalty expenses in 2012 and 2013.
The company said the restatements could mean it is in violation of terms for its bank debt and other notes.
The company said the review arose from information brought to the attention of Mr. Dyck, the company’s new CFO who started in the position on May 1. Penn West said it is still reviewing financial statements for the past 4 1/2 years.
Penn West said that while it is under the cease-trade order, it will file status reports every two weeks in the form of news releases, which is required under securities rules.
The status reports, which must be filed even if there are no changes to disclose, must include information about whether there are any material changes to the information released in the original “default announcement,” and whether there are any anticipated further defaults or other material information that has not been disclosed.
Penn West said last week it had imposed its own blackout on trading by officers, directors and other insiders, which will continue until all restated financial statements are filed.