File photo of Dave Roberts, president and Chief Executive Officer, Penn West Petroleum
Penn West Petroleum Ltd. has jettisoned a package of Alberta oil and gas properties, lifting its asset-sale tally to more than $1-billion as the company heads into a second year of restructuring with its shares at multiyear lows.
Penn West, which seeks to win back investor confidence following an accounting scandal earlier this year, said it sold the south-central Alberta properties for $355-million. Its shares rose more than 3 per cent on word of the deal, but are still worth about half of what they were in mid-June.
It sold the assets to an unnamed private company. They produce 7,500 barrels of oil equivalent a day, and represent 5 per cent of Penn West's proved and probable reserves, the company said.
One big benefit of the sale is that it removes abandonment liabilities on 2,250 wells, it said. Such obligations, built up through years of asset acquisitions, have been problematic for Penn West as it seeks to sell non-core properties and lower costs, analysts have said.
Under chief executive officer Dave Roberts's strategic blueprint, Penn West aims to sell up to $2-billion of non-core assets to cut debt and concentrate efforts in three main Western Canadian light-oil plays – Cardium, Viking and Slave Point. The restructuring, which began last November, has also included major staff cuts and reduction in the dividend.
Progress was hampered this summer, when the company disclosed that capital spending, operating costs and royalty payments had been misclassified on its books. The scandal, which it blames on employees no longer at the company, prompted a sharp selloff as investors feared that the strategic moves could be for naught.
Penn West became the target of several Canadian and U.S. class-action lawsuits alleging it and several current and former top executives were negligent because they failed to maintain proper controls. Those remain outstanding.
In September, it restated more than two years of financial statements, and said an internal investigation uncovered "material weaknesses" in oversight. With the corrections made, the company said, it could resume its corporate retooling.
However, Penn West stock has been hit hard during the recent skid in world oil prices, as investors weigh the impact on its cash flow in relation to its debt. The equation changes as cash generation gets hit with the double whammy of reduced production and a drop in revenue on the remaining output due to weaker crude prices.
Still, the asset sale is positive for Penn West, as it will allow the company to pay down debt and redeploy resources to operations it prefers, FirstEnergy Capital Corp. analyst Katrina Karkkainen said in a research report.
TD Securities analyst Travis Wood said the reduced exposure to abandonment liability is also favourable.
Despite the sale, Penn West still expects its production to average 101,000-106,000 barrels of oil equivalent a day this year, it said.
Jeffrey Jones