Uccmal Posted April 28, 2015 Share Posted April 28, 2015 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 I agree. Once it is realized that PWT will survive this, there will be a big and rapid pop in tue stock price. Link to comment Share on other sites More sharing options...
original mungerville Posted April 28, 2015 Share Posted April 28, 2015 Two questions: What are the bonds trading like? And do you think the re-appraisal starts with the earnings call on Thursday? If the assets are worth $11 plus per share, the LEAPS and even the stock have a great risk-reward ratio here. 5 on the upside and 1 on the downside. Link to comment Share on other sites More sharing options...
Uccmal Posted April 28, 2015 Share Posted April 28, 2015 Two questions: What are the bonds trading like? And do you think the re-appraisal starts with the earnings call on Thursday? If the assets are worth $11 plus per share, the LEAPS and even the stock have a great risk-reward ratio here. 5 on the upside and 1 on the downside. I dont know. There is a reference to the bonds back in thread, around December, I think. If someone could look them up on a Bloomberg it would be helpful. They are not publicly listed so any trades are OTC. Link to comment Share on other sites More sharing options...
thepupil Posted April 28, 2015 Share Posted April 28, 2015 I looked into them, but only have the ability to get runs from US trading desks. They don't trade in US. I asked if someone had any contacts to Canadian sell side desks, but that didn't get anywhere. Link to comment Share on other sites More sharing options...
original mungerville Posted April 28, 2015 Share Posted April 28, 2015 Thanks guys. SD do you know? Link to comment Share on other sites More sharing options...
Uccmal Posted April 28, 2015 Share Posted April 28, 2015 Pupil, you posted this in December: (this is what I got when I googled PennWest Bonds). http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/pwe-pennwest/145/?wap2 Link to comment Share on other sites More sharing options...
kevin4u2 Posted April 28, 2015 Share Posted April 28, 2015 Assets are not worth anywhere near $11. $/flowing boe is a grossly misleading valuation technique. Two questions: What are the bonds trading like? And do you think the re-appraisal starts with the earnings call on Thursday? If the assets are worth $11 plus per share, the LEAPS and even the stock have a great risk-reward ratio here. 5 on the upside and 1 on the downside. Link to comment Share on other sites More sharing options...
Uccmal Posted April 28, 2015 Share Posted April 28, 2015 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 I agree. Once it is realized that PWT will survive this, there will be a big and rapid pop in the stock price. Mind you, I dont expect this to happen Thursday. Of anything the initial reaction will likely be downwards... seems to be the earnings trend right now. Link to comment Share on other sites More sharing options...
SharperDingaan Posted April 29, 2015 Share Posted April 29, 2015 Bondholders are looking to the value of the assets backing their claim, & their place in the liquidation line. In a liquidation, the best assets will go first (you sell what you can). In their case there will be some sales at premium prices, and the proceeds would be enough to pay the vast bulk of the debt off. There's is little risk to NOT getting repaid, it could just take a while. Shareholders are looking to the undeveloped moose pasture, it would sell at a deep discount, and take a long time to sell - if at all. Average the good & bad assets & you get a discount valuation, & why everyone is so certain they will not get top $; if you are going to be lazy, you get what you deserve. We expect progressive re-rating as they pay down the remaining 450M creditors are demanding. Many ways by which they could do this, but once its done - liquidation is off the table, & the dividend clock starts ticking. A 12c/quarter dividend starting Jan-01, discounted at 4% is a $12.00 share price, conditional on the 450M being raised by June-30 & 2H oil at around $C 65. Every time the $C declines, &/or the light oil price rises, they get additional tail wind. We expect an earnings release somewhat similar to what occurred with Precision Drilling. Prove the business did not collapse, & it becomes possible (under their investment guidelines) for some of the institutions to start investing. When the price rises above $5.00 it becomes a pretty easy sell. If there is an accompanying asset announcement, it could happen very quickly. Keep in mind that you also don't need a done deal, announcing that you are in "exclusive talks with a seller" works as well. Once they are over the $3.50 mark, they could also do a private placement with very little difficulty. SD Link to comment Share on other sites More sharing options...
Uccmal Posted May 5, 2015 Share Posted May 5, 2015 The situation with Pennwest reminds in may ways of Fairfax circa 2004 and 2005: At the time Fairfax was selling assets to pay down debt, and insurance claims. Both operate in capital intensive, commodity industries. Fairfax had to issue stock at below book, something PWT has not done so far. Fairfax was supposed to go bankrupt, but didn't. The perfect storm of KRW hit, and killed capital levels. PWT got hit by the perfect storm of too much debt, and being unhedged going into the oil price crash. Pwt has put in some hedges to protect some of their oil selling price. They have taken substantial write downs, and are cleaning up the debt levels. If oil stays at this price or above they will be able to get the debt down to a sustainable level without too much pain. One more small asset sale would get them there. The discipline they have been forced into will be reflected in their operating costs. I have bought in dribs and drabs. I lost alot on the downswing last year, exited most of the position, took my tax losses. I am now back in with a larger position, as shares, at a new lower price. Link to comment Share on other sites More sharing options...
Cardboard Posted May 6, 2015 Share Posted May 6, 2015 I think that they are doing a very good job turning around the company and it is becoming increasingly clear that it will be a smaller meaner machine going forward. All focus is on the Cardium, Viking and Slave Point. If you read the various reports and press releases over the last year or so this is it. So my take is that everything else will be sold, except maybe the Duvernay asset which would become a 4th core area eventually. If this is sold also, then I expect them to acquire more acreage in their 3 core areas and to turn into a cash machine with very little debt or allowing them to pay very juicy dividends. However, they are moving very very slowly on asset sales. On the other hand, they were quite fast cutting cost and improving drilling efficiencies in their 3 core areas or turning from a marginal player into best in class. I still scratch my head as to why more wasn`t done early last year when selling conditions were very good. Cardboard Link to comment Share on other sites More sharing options...
SharperDingaan Posted May 6, 2015 Share Posted May 6, 2015 Obviously everyone would like to see faster progress, but we don't hold the late start against them. When you are king of the world, & riding an extended price spike - it is very difficult to prepare against that plausible but remote chance of a collapse in conditions. Being forced into a financial restatement at the start of all this, was actually a godsend. This is where patience is going to reward you very well. SD Link to comment Share on other sites More sharing options...
plato1976 Posted May 19, 2015 Share Posted May 19, 2015 looks like it resumed its road to zero Obviously everyone would like to see faster progress, but we don't hold the late start against them. When you are king of the world, & riding an extended price spike - it is very difficult to prepare against that plausible but remote chance of a collapse in conditions. Being forced into a financial restatement at the start of all this, was actually a godsend. This is where patience is going to reward you very well. SD Link to comment Share on other sites More sharing options...
Uccmal Posted May 22, 2015 Share Posted May 22, 2015 Two directors bought on May 15th. Jay Thorton: 75000 shares John Byrdson: 200000 shares - now holds 750000 total It is still a bet on commodity price recovery or at least stability at this point. With light crude priced around 60 Us they get 72 CDn per barrel which is $7.00 above their assumptions for 2015. The have hedged some of their oil and I would think they have hedged a bit more in the last couple of weeks. Link to comment Share on other sites More sharing options...
SharperDingaan Posted June 23, 2015 Share Posted June 23, 2015 http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/11691110/Oil-investors-betting-on-crude-hitting-82-per-barrel.html US$82 per barrel is $100.86 at the current USD/CAD FX rate of 1.23. Given the PWE sensitivity of $0.04/share per $C1 above $CAD65, this implies a $C1.43 increase in forecast eps starting around Jan 01, next year. Pay 60% of that out as a dividend, and discount at 7.5% - and you get $11.32/share. SD Link to comment Share on other sites More sharing options...
influx Posted June 25, 2015 Share Posted June 25, 2015 If it goes to $82, why would the exchange rate remain the same? That is a big assumption. If oil gets stronger, CAD may get stronger (vs. the USD) which means less of earnings in CAD compared to your scenario CAD got lower as far as I know with the drop in oil, no? Link to comment Share on other sites More sharing options...
SharperDingaan Posted June 25, 2015 Share Posted June 25, 2015 Just being conservative on both the FX rate, the other products they sell, and the potential payout rate. Agreed that most forecast the FX rate will be lower; but if oil is at US 82 - the price of gas & condensate will probably be up as well. I also assume that any premium for their light crude washes out any discount for being landlocked. You also might want to keep in mind that if US 82 is the Dec 31 price; the incremental funds flow from prices higher than forecast between now and Dec-31, is highly likely to either exceed, or match, the 350M of remaining debt that they need to pay down. They may well not need to do any additional asset sales. SD Link to comment Share on other sites More sharing options...
influx Posted June 26, 2015 Share Posted June 26, 2015 Yeah. OK Me, would like to see more insider buying though Link to comment Share on other sites More sharing options...
sampr01 Posted July 16, 2015 Share Posted July 16, 2015 anyone adding at this level.. Link to comment Share on other sites More sharing options...
investor-man Posted July 16, 2015 Share Posted July 16, 2015 anyone adding at this level.. I did yesterday. It was mentioned by either the CEO or IR that they had hedging in place and the details would be disclosed at the end of Q2, which to my mind means they are in a better position now than they were when it was previously at this price. Link to comment Share on other sites More sharing options...
Guest 50centdollars Posted July 16, 2015 Share Posted July 16, 2015 what makes you guys think oil is coming back? Link to comment Share on other sites More sharing options...
investor-man Posted July 16, 2015 Share Posted July 16, 2015 what makes you guys think oil is coming back? are you asking me? I'll answer anyway... nothing makes me think oil is coming back, but PWE has stated they've put hedges in place which should help them keep their head above water. Link to comment Share on other sites More sharing options...
Uccmal Posted July 16, 2015 Share Posted July 16, 2015 I have exited most of my position. The central thesis has deteriorated for now (i.e. oil going back up). They need the higher prices to reduce leverage. My general feeling is that when/if oil reaches higher prices there will be a window of opportunity for Pwt in particular. By this I mean that oil prices will rise well ahead of Pwt rallying. Right now they are operating on their lenders good graces, which is a dangerous spot. Each day the pressure will mount to sell assets at fire sale prices - the same assets they use to generate cash flow. Re: Hedging - this will keep them from going under completely. It isn't going to help build the balance sheet or deleverage. The hedges eat into cash flow steadily every day. At the same time the hedges are necessary to survive. I was way too early on this. Link to comment Share on other sites More sharing options...
goldfinger Posted July 17, 2015 Share Posted July 17, 2015 From investor village board with Nawar: nonsensical selloff The selloff in Canadian E&Ps of late is nonsensical. Canadian E&Ps are benefiting for a substantial currency advantage. If we take RBC's latest WTI price projections for 2015 to 2018, this what we get in terms of WTI vs. Edmonton Light (inclusive of a $5 differential to the advantage of WTI): 2015 WTI: $56 Edmonton Light: $63.7 CDN 2016 WTI: $72 Edmonton Light: $82.4 CDN 2017 WTI: $79 Edmonton Light: $88 CDN Considering that BOC cut interest rates of late while the FED is likely to raise, the weaker Canadian dollar is here to stay, thus for a company like Penn West. A WTI averaging merely $60 in 2016 would translate into $71 in 2016. Edmonton Light. At $71 oil price would be only 25% below what Penn West was getting in Edmonton Light in the $90 to $100 WTI oil world. Yet, the stock price has lost close to 80% of its value in the meantime. Penn West core asset base in the Viking and the Cardium have very robust economics in the $60 WTI range (58% IRR in the Viking at $60 WTI according to Raging River - http://www.rrexploration.com/pdf/RRXMay062015Presentation.pdf) (30% to 80% ROR in the Cardium at $56 WTI according to Whitecap - http://www.wcap.ca/uploads/Presentations/WCP_-_2015_07_15.pdf). Penn West is deploying its capital almost exclusively in those profitable areas, while other less attractive areas are still cash flow positive in terms of existing production costs, thus any cash generated from previously drilled producing wells (but not profitable to drill today areas) is being recycled into a profitable core operations, this will render the company increasingly sustainable as a larger portion of production is transferred to the core. Penn West stock price is influenced by two factors: one is external (oil prices) and the second is internal (operational efficiency, balance sheet management ... etc.). In terms of internal factors the company has made noticeable efforts to reduce costs (will likely become yet more evident after Q2 numbers are announced). In terms of balance sheet management, already $400m in asset sales have taken place at very accretive metrics to our current 30K per flowing valuation, and additional assets sales are lined up. Penn West management is far from standing still in this environment, they continue to manage the business with an eye toward making it completely sustainable and cash flow positive in ($70+ Edmonton Light -$60 WTI- in 2016). On the other hand the oil market balancing process is well underway, 60% less rigs drilling in North America and 15% less worldwide, hundreds of billions of dollars in deferred and cancelled capex, tens of thousands of oil workers laid off and re-surging oil demand worldwide. The industry has responded and the consumer has responded, the only required element now is: additional time, in order to allow for supply to diminish as a result of the steps taken by the industry and for demand to catch up with OPEC’s excess supply. This process still requires another 18 months to complete, after which the market should return to a balance state in the $75+ WTI range. The current downturn in prices below $60 WTI will only accelerate the balancing process and thus should be welcome by long term oil investors rather than scorned There is no magic bullet here, Penn West internal re-positioning process is a slow and a gradual undertaking, while the oil market own turnaround is even slower. There will be some down swoons like we are witnessing today as the market completely re-adjusts. I have capitalized on Penn West’s weakness of late and added yesterday and today to an already large position, and while the longs are yet to vindicated in their convection, I believe we are 8 months closer to the end of this down cycle, and oil will likely bottom at a higher low than it did in January in the next couple of weeks before resuming its move to $60+ in Q3. Good luck & enjoy your weekend. Regards, Nawar Link to comment Share on other sites More sharing options...
SharperDingaan Posted July 28, 2015 Share Posted July 28, 2015 You might want to look at their recent PP deck, do a little pricing research, & scan the Winnipeg paper. 200M cut in run-rate OPEX, 10% (62M) savings in Capex to market conditions; The bulk of their sales in Q2 were above budget, & average FX is roughly 5% better than budget; Highly likely that the 15,000 bbl/day hedge at $US50 expiring June 30, was rolled at $US60+; Highly likely that Spearpoint has a sale MOU under it; Bath-tub loss last quarter. Good luck SD Link to comment Share on other sites More sharing options...
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