Investors punished Penn West Petroleum Ltd. this week after what many thought was a fire sale of southern Alberta oil and gas assets. Its CEO says they are missing the big picture as he seeks to get the debt-heavy company on track.
Penn West said late on Tuesday it struck a deal to sell $175-million worth of assets in central and southwestern Alberta, including non-core areas in the Viking and Mannville zones in the eastern part of central Alberta. The buyer was not disclosed.
It is part of the company's plan to jettison up to $2-billion of assets by 2015 so it can cut debt and concentrate on three main operating areas. However, the stock has tumbled nearly 13 per cent in the past two days after some investors were disappointed by the price. The bulk of the drop came on Wednesday.
"We got a lot of push back from some of our investors ... We need to challenge the market in terms of some of the reaction we got yesterday," Penn West chief executive officer David Roberts said at an investor conference in Whistler, B.C., on Thursday.
The sale rang in at around $26,000 per daily barrel of production, one of several metrics used to evaluate deals. That was below the company's other recent sales and under some analysts' estimates for those wells.
Mr. Roberts, a U.S. oil man who signed on as CEO in June, said the divestiture shouldn't be evaluated using that gauge alone. The main thrust of the deal was to remove the southern Alberta assets, and the costs associated with them, from under the Penn West umbrella – a tough task during a period in which there are plenty of assets on the block but few buyers.
"We were able to move 1,800 wells out of the portfolio. I've reduced the well count in this company by 20 per cent since I've been here. That's a significant metric for a company like ours as we go forward," he said.
He also said Penn West is not out to peddle assets at prices that are well above their value.
"Here's one of the things you're never going to get from me – I do not spike the ball. I want people to understand when they do business with us they're going to get a fair deal from us," Mr. Roberts said. "I think the counter-party thinks that this is a great deal for them. It's a great deal for me, similar to the first three transactions we did last year. We need to continue to be in that mode because there are certain things I need to get done."
Under Mr. Roberts and chairman Rick George, who is the former CEO of Suncor Energy Inc., Penn West has plotted a strategy of cutting costs through asset sales, staff layoffs and a dividend cut as a way to refocus the company. The moves are aimed at lifting the company's long-languishing stock price.
At the end of 2013, Penn West had $2.9-billion in debt, or 2.7 times annual cash flow.
Mr. Roberts said the long-term goal is to reduce that to 1.5 times, and that a ratio of two times cash flow would "unshackle" Penn West to pursue new growth opportunities.