PWE - Penn West Petroleum

[investor-man]

FWIW I bought into this today. Seems like good value for the price. Hopefully it doesn't go to 0  ;)

[SmallCap]

Trading halted as PWE announces a sale of royalty interest for $321 Mil

 

http://finance.yahoo.com/news/penn-west-announces-321-million-192500063.html

 

I am not sure what kind of value they received for their assets in this sale. But it does go a significant way towards stabilizing their balance sheet.

[sculpin]

The following is from a post on the Investor Village PWE board by Nawar. Seems like PWE has cut a pretty good deal on this sale of the royalty interests....

 

Penn West got an excellent price for those assets (probably due to a bidding content between Freehold and Prairie Sky). Based on the details included in the TD package, the royalty asset production was 742 barrels (0.8% of the company total production) meanwhile associated cash flow was below 2% of the company total cash flow, yet this deal alone has reduced Penn West total debt by 15%!.

 

I expect this deal to be the first step in a series of steps that will unlock Penn West value and align it with its peers in the market, thus potentially taking the shares to $6-$8 later in the hear.

 

Regards,

Nawar

 

http://www.investorvillage.com/smbd.asp?mb=4217&mn=9378&pt=msg&mid=14853119

[investor-man]

Rad  8)

[kfh227]

sculpin,

 

This forum needs a "like button"

[Jurgis]

sculpin,

 

This forum needs a "like button"

 

OT: I agree, this forum needs a non-Facebook-connected like button.

 

It seems that either nobody uses the Facebook-like-button that is there or it does not work or both.

[Guest wellmont]

The following is from a post on the Investor Village PWE board by Nawar. Seems like PWE has cut a pretty good deal on this sale of the royalty interests....

 

Penn West got an excellent price for those assets (probably due to a bidding content between Freehold and Prairie Sky). Based on the details included in the TD package, the royalty asset production was 742 barrels (0.8% of the company total production) meanwhile associated cash flow was below 2% of the company total cash flow, yet this deal alone has reduced Penn West total debt by 15%!.

 

I expect this deal to be the first step in a series of steps that will unlock Penn West value and align it with its peers in the market, thus potentially taking the shares to $6-$8 later in the hear.

 

Regards,

Nawar

 

http://www.investorvillage.com/smbd.asp?mb=4217&mn=9378&pt=msg&mid=14853119

 

this was his first cut at the deal. upon further analysis he discovered there were more parts to the deal that made it slightly less favorable to PWT.

 

 

[SharperDingaan]

You might want to keep in mind that for PWT to be free of the dividend covenant by Dec-31, they need the rest of the transactions to execute by June 30. It is highly likely that over the next 8 weeks or so- there are going to be at  least one or two more announcements.

 

In the meantime, may we all enjoy!

 

SD

[jawn619]

Congrats everyone. I didn't stay in this because of what I thought was a very real chance of bankruptcy with the high debt load, but things are definitely looking up with the asset sale.

[Uccmal]

I am still holding Leaps and a tiny bit of common: $1.50 and 2.00 Leaps which are all positive for a change. 

 

There has been interesting developments recently.  The crude price in Cdn. dollars is well above PWTs assumptions of 65 CDn.  The nat. gas price is still below their assumptions but not by much.  I am not exactly sure what this means - lets say its better than a kick in the teeth. 

 

There was insider buying in late March from Dave Roberts and a recently new director (the guy who runs Telluride Petroleum - I cant find info. on this company - private?). 

 

And of course the asset sale. 

 

I am wondering what they might take in a buy out.  I am thinking about $8.50.  The COB is going to want to get his money back and that is around his average purchase price. 

[investor-man]

Estimates I have seen for a buyout have been estimated at between $6 - $8 CAD. So, $8.50 is on the high end, but I understand your logic.

[bizaro86]

I am wondering what they might take in a buy out.  I am thinking about $8.50.  The COB is going to want to get his money back and that is around his average purchase price.

 

Who do you think is a realistic buyer of PWE? I don't see any of the big US guys wanting their assets, and the only Canadian one I could see buying it would be CNQ (and Murray Edwards knows the assets). They would want a discount. Maybe someone international? I have to think with many of the big asian multinationals getting burned in the Canadian oilpatch recently that there will be less appetite for a deal there. I basically can't come up with a buyer for PWE at a reasonable price...

[Uccmal]

I am wondering what they might take in a buy out.  I am thinking about $8.50.  The COB is going to want to get his money back and that is around his average purchase price.

 

Who do you think is a realistic buyer of PWE? I don't see any of the big US guys wanting their assets, and the only Canadian one I could see buying it would be CNQ (and Murray Edwards knows the assets). They would want a discount. Maybe someone international? I have to think with many of the big asian multinationals getting burned in the Canadian oilpatch recently that there will be less appetite for a deal there. I basically can't come up with a buyer for PWE at a reasonable price...

 

Dont know.  All I know is that Rick George, the COB spent 8 million or so on shares at an average of 8.50 and he would be part of any negotiations.  Suncor?  ARX?  Lots,of people know the assets. 

[SharperDingaan]

We have a very different take ..

 

If you want it, you're paying the going rate producing boe. 100K is pretty standard; 115K was recently paid by Bonterra for the light, sweet, crude in their area. $18-25/share before you're done the pissing match.

 

Take a run at them for $8-$10, & they will just do a private placement for the 450M left to pay the bank - & start the clock ticking on higher dividends. You'll also have competition, because if the asset sales are not going well .. this is almost exactly what a good CFO would orchestrate  ;)

 

The Q1 numbers are most likely also a little better than most are expecting. Higher average selling prices, no amortization from the written-off assets, and the distinct possibility of another rabbit in the hat.

 

We also wouldn't put it past PWE doing some 2H consolidating, & using equity as currency  ;)

 

SD

 

[Uccmal]

We have a very different take ..

 

If you want it, you're paying the going rate producing boe. 100K is pretty standard; 115K was recently paid by Bonterra for the light, sweet, crude in their area. $18-25/share before you're done the pissing match.

 

Take a run at them for $8-$10, & they will just do a private placement for the 450M left to pay the bank - & start the clock ticking on higher dividends. You'll also have competition, because if the asset sales are not going well .. this is almost exactly what a good CFO would orchestrate  ;)

 

The Q1 numbers are most likely also a little better than most are expecting. Higher average selling prices, no amortization from the written-off assets, and the distinct possibility of another rabbit in the hat.

 

We also wouldn't put it past PWE doing some 2H consolidating, & using equity as currency  ;)

 

SD

 

Thats a very interesting perspective.  Based on what Bonterra paid PWT is worth what you say.  Thanks for the lesson in valuing oil resources.  I hadn't really looked at it that way before. 

[bizaro86]

We have a very different take ..

 

If you want it, you're paying the going rate producing boe. 100K is pretty standard; 115K was recently paid by Bonterra for the light, sweet, crude in their area. $18-25/share before you're done the pissing match.

 

 

100k per bbl/d was the right number in a higher oil price environment. 115k per bbl/d is the right number in a higher oil price environment with significant upside in the assets. It's also the right number if you can talk someone into overpaying.

 

I hate betting that someone else will overpay for something. It feels like investing in tech stocks in '07-'08 to me. This is worth X per eyeball because someone else just paid X per eyeball.

 

I haven't done too much work on PWE (so they could be worth that), but I think that style of analysis is speculative as opposed to value investing.

[SharperDingaan]

"Bonterra" is actually Beaumont Energy; & they paid $115,200 boe, in Feb-2015, for a stake in one of PWE's main plays. Keep in mind that you can ONLY drill for oil, or buy the reserve of someone else - if you want light, sweet, crude its 115K - & its coming out of your drilling budget. AND this oil ... is already tied into the collection system, is producing, & getting sold - every day - generating CF from day 1.

 

Nobody is going to be getting much of a discount here.

 

SD

 

[alertmeipp]

SD,

 

You are assessment is overly optimistic. I am not saying PWE does not have some production that can sell for 100k, but it won't be majority.

 

[Uccmal]

SD,

 

You are assessment is overly optimistic. I am not saying PWE does not have some production that can sell for 100k, but it won't be majority.

 

 

Well then.  Lets be really conservative in our assumptions and say PWTs average production is worth 60k x 95000 boe/day / 500M shares  ~ $11 per share. - P&P is free. 

[bizaro86]

SD,

 

You are assessment is overly optimistic. I am not saying PWE does not have some production that can sell for 100k, but it won't be majority.

 

 

Well then.  Lets be really conservative in our assumptions and say PWTs average production is worth 60k x 95000 boe/day / 500M shares  ~ $11 per share. - P&P is free.

 

You need the plant and equipment to produce the oil and earn the money from selling the oil. You shouldn't capitalize the earnings of a business, and then also count the value of the assets required to produce those earnings, since if you sell the assets the earnings go away. Unless of course I misunderstand what you are saying.

 

Anyway, I'm not trying to dump on this idea, just comment on some of the more aggressive assumptions that I don't think are warranted. I do think it's probably a positive EV idea, but I'm already over-exposed to Canadian oil and gas via my career/stock options.

[SharperDingaan]

You might want to think again.

 

The purchase boe price is the price for EVERYTHING/proven reserve.

 

Buy a lease in a moose pasture, where you've got to find the oil, then connect into the collection system, & find pipeline space & a market - & you are quite correct - you would pay squat for it.

 

But buy a tied-in producing well, with its pipeline space & export contract, & you are going to be very happy to pay. And if you intend to consolidate high quality wells in the same field, you would also be willing to pay very well - as you are going to get economy of scale, and a barrier to entry against anyone else trying to enter the field. Then remind yourself that you don't have to sell or buy wells to consolidate - you could also simply swap wells from a similar quality field; or swap production via a derivative.

 

SD

 

[bizaro86]

You might want to think again.

 

The purchase boe price is the price for EVERYTHING/proven reserve.

 

Buy a lease in a moose pasture, where you've got to find the oil, then connect into the collection system, & find pipeline space & a market - & you are quite correct - you would pay squat for it.

 

But buy a tied-in producing well, with its pipeline space & export contract, & you are going to be very happy to pay. And if you intend to consolidate high quality wells in the same field, you would also be willing to pay very well - as you are going to get economy of scale, and a barrier to entry against anyone else trying to enter the field. Then remind yourself that you don't have to sell or buy wells to consolidate - you could also simply swap wells from a similar quality field; or swap production via a derivative.

 

SD

 

Oh for sure. I don't dispute that production is worth $X per flowing bbl. I think 115k is high, but that is what it is. Obviously it varies by the quality of the assets.

 

I was more referring to Uccmal's comment that P&P was free after you count the production. If he was referring to property and plant, then I would comment you need the property and plant to produce the oil, so once you've paid for the production at a high price you wouldn't pay for the property and plant separately.

 

If he was talking about proved and probable reserves, I have a similar comment. Once you've paid for the production, you've effectively paid for the reserves as well, since the production is depleting the reserves. There are a few exceptions to this (underdeveloped lands, etc), but it's generally true.

[innerscorecard]

I can't say that I agree very much with this writeup, but I thought I'd post it here:

 

http://www.beyondproxy.com/penn-west-petroleum-distressed-valuation-not-justified/

 

It's interesting that it appears not to have been edited for grammar.

 

Actually, in general I don't find the ideas posted on Beyond Proxy to be that good at all, now that I think about it.

[SharperDingaan]

We would put it to you that after the earnings release , & proof that the house isn't burning, the equity & bond valuations are going to move back in sync - & in pretty short order. It will happen quicker if there is an accompanying asset sale, but one step at a time.

 

SD

[Uccmal]

You might want to think again.

 

The purchase boe price is the price for EVERYTHING/proven reserve.

 

Buy a lease in a moose pasture, where you've got to find the oil, then connect into the collection system, & find pipeline space & a market - & you are quite correct - you would pay squat for it.

 

But buy a tied-in producing well, with its pipeline space & export contract, & you are going to be very happy to pay. And if you intend to consolidate high quality wells in the same field, you would also be willing to pay very well - as you are going to get economy of scale, and a barrier to entry against anyone else trying to enter the field. Then remind yourself that you don't have to sell or buy wells to consolidate - you could also simply swap wells from a similar quality field; or swap production via a derivative.

 

SD

 

Oh for sure. I don't dispute that production is worth $X per flowing bbl. I think 115k is high, but that is what it is. Obviously it varies by the quality of the assets.

 

I was more referring to Uccmal's comment that P&P was free after you count the production. If he was referring to property and plant, then I would comment you need the property and plant to produce the oil, so once you've paid for the production at a high price you wouldn't pay for the property and plant separately.

 

If he was talking about proved and probable reserves, I have a similar comment. Once you've paid for the production, you've effectively paid for the reserves as well, since the production is depleting the reserves. There are a few exceptions to this (underdeveloped lands, etc), but it's generally true.

 

I meant proved and probable.  You have a partial point there.  In Pwts case there is alot of untapped reserve.  So perhaps the price/ barrel of production might be higher than usual based on that.  But I go pretty conservative whenever I calculate anything future based and I dont set targets.  If PWT recovers and reinstates its dividend, with a more manageable debt structure, I would likely keep some stock indefinitely.