Struggling Penn West Petroleum Ltd. hopes some Calgary heavyweights can help turn the company around.
Capping off a tumultuous year that included some serious management turnover, the oil and gas explorer has named former Suncor Energy Inc. chief executive officer Rick George as its new chairman.
Allan Markin, the former long-time chairman of Canadian Natural Resources Ltd. has also been named vice-chairman, adding another venerable named to the board of directors.
Investors clearly like the potential of these moves. After a rough year, during which Penn West's shares plummeted 37 per cent, the stock popped about 7 per cent on Monday morning.
However, the two men have a tough slog ahead of them. Penn West is hampered by a major debt burden, and there are fears that management will have to slash its dividend.
The company currently pays out $525-million annually to shareholders (before proceeds from the dividend reinvestment plan) and just last month analyst Greg Pardy at RBC Dominion Securities projected that the company would have to slash its payout to $366-million this year and to $318-million in 2014.
The root problem: Penn West currently has $2.9-billion in long-term debt, according to its financial statements released last week. Mr. Pardy wrote that the debt burden needs to fall to between $1.5-billion and $2-billion in order to maintain the dividend.
Penn West is well aware of the problems. The company sold $1.35-billion worth of assets from June to December last year, and in the latest quarterly results there were many mentions of lowering the debt burden.
Having two experienced hands on deck should help the company achieve this goal – or at least that's the plan. Last month chief executive officer Murray Nunns said the board of directors has taken a much more active role in operations.
Penn West first announced a chairman change when it released its quarterly results last week. But at the time the former chairman, John Brussa, who served for 18 years, was replaced by board member Jack Schanck.
It turns out that was just a temporary placement, even though it wasn't made explicitly clear. Just a few days after the original shuffle, Mr. George's announcement was released.
(Tim Kiladze is a Globe and Mail Reporter.)
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