Penn West Petroleum Ltd., grappling with accounting irregularities and a review of its historical financial statements, said it’s in talks with bondholders to seek a waiver of defaults and delayed filing its results.
The Calgary energy company late Tuesday said it advised bankers and bondholders of defaults under its bank facility and senior unsecured notes because of its decision to restate financial results and delay its second-quarter filings as it reviews accounting irregularities. Penn West’s review, disclosed July 29, has uncovered $381-million worth of accounting problems in 2013 and 2012.
Penn West said it has received a waiver of defaults under its bank facility, giving the company a “cure period” until Oct. 14. It’s now in “advanced discussions” with noteholders and is seeking a waiver of defaults.
Penn West has drawn about $250-million from its $660-million bank facility. The company said it “believes it that it has access to sufficient funds to satisfy its liquidity needs” during the cure period.
Analysts said it appears Penn West’s bank facility has been cut to $660-million from $1.7-billion until it files financial statements.
Penn West’s voluntary accounting probe is ongoing. The company was supposed to file its second-quarter results Thursday.
The defaults are not related to the financial covenants tied to the bank facility and notes, Penn West said. The company has yet to disclose which financial covenants it believed it may breach.
The Alberta Securities Commission last week ordered 11 directors and executives of Penn West not to trade any shares of the company until it completes its review of accounting problems and files accurate financial statements. The company applied for the cease-trade order. Directors and executives will not be allowed to buy or sell shares until two full business days after it files its delayed and restated results.
The regulator may issue a general cease-trade order if the restated financial results and second-quarter results are not filed by Oct. 14, Penn West said. The Ontario Securities Commission has issued a “similar temporary” cease-trade order, and the company said it expects this to be replaced with a “permanent” order.
Penn West hired a new chief financial officer May 1, and the company disclosed its accounting troubles three months later. So far, it has uncovered two problems tied to operating expenses. It believes previous employees shifted operating expenses to capital expenses, which would have made the company’s quarterly expenses lower. Penn West also believes the company shifted operating expenses to royalty expenses. While this would not change total expenses in a single quarter, it would make the company’s operating expenses look better. Unlike royalty expenses, operating expenses are, to a certain degree, within a company’s control.
The company’s audit committee is reviewing Penn West’s financial results covering the past four and a half years.