PWE - Penn West Petroleum

[supertutti]

I bought in some as well. Lets roll the dice.

[Cardboard]

SD,

 

They have done some of that in the Viking along with the sale of their existing royalties. It is a good idea since the market for yielding assets is very strong. Everything that pays a stable dividend to public investors gets a very high multiple.

 

Another idea that I was thinking about but, I don't know enough details about what they own: midstream assets. What do they own in terms of midstream that is used by themselves and third party? Turning that into a public vehicle is worth again big bucks due to the yield structure.

 

Cardboard

[adesigar]

Does anyone have a list of similar companies or an ETF. I  was thinking of buying a  basket instead of just one.

[yadayada]

What about the land? They own 4.5 million acres of land. It seems majority is still undeveloped, judging by other companies. So they could sell that for lik 800$ per acre? If they sell 3.5 million acres, that is like 2.8 billion$. It would take a while, but this + funds flow from remaining 230m BOE of already developed reserves could be worth another 1.5 billion before they run out in about 7 years? This assumes they generate about 200m$ per year, not really adding to their developed resources.

 

Then give remaining value of 800m to the other 250m of probable reserves (800$ per acre for 1m acres, with 250m of 2p O&G in it). Subtract 4.5b of liabilities and you get 400m$ for the equity? And this seems to be a worst case scenario.

 

Or am I way off here.

[SharperDingaan]

You sell what you can, not necessarily what you would like to. The good news is that the land is worth the most to PWT, & with the debt monkey gone - they are highly likely to be able to drill it successfully.

 

SD

 

[influx]

I cant reconcile the fact that there is no insider buying. How do you all think about this? What is your reasoning? The pros and cons.

 

Definitely good, that there are no sellers too

 

Of course, always the best to do my own deep d&d. I just use abit Scuttlebutt-ing

[investor-man]

I cant reconcile the fact that there is no insider buying. How do you all think about this? What is your reasoning? The pros and cons.

 

Definitely good, that there are no sellers too

 

Of course, always the best to do my own deep d&d. I just use abit Scuttlebutt-ing

 

The hope is that they can't because there is a transaction underway....

[yadayada]

Fwiw the Riddell companies (paramount, Trilogy etc) look interesting too.

[SharperDingaan]

Insiders have roughly 8 weeks between each quarter-end when they are not restricted. If there is a significant event being discussed, the restriction remains until the transaction is either announced, or there is a public announcement otherwise. There were two insider purchases made during the last unrestricted period; in the current period there have been none.

 

It is a speculation that there have been no further buys, because the restriction has not been lifted. Our own thoughts are that they may have entered into a conditional MOU sale late in June, that executes in 2H2015. Until it executes, the restriction remains in effect. There have been at least 5 independent indications that they may well have a significant sale in progress.

 

SD

[frommi]

 

It is a speculation that there have been no further buys, because the restriction has not been lifted. Our own thoughts are that they may have entered into a conditional MOU sale late in June, that executes in 2H2015. Until it executes, the restriction remains in effect. There have been at least 5 independent indications that they may well have a significant sale in progress.

 

Is hope a new investment strategy?

[SmallCap]

Is hope a new investment strategy?

 

Chapter 7 of the intelligent investor, didn't you read it :)

[yadayada]

It is a two step strategy, first you imagine your stake going up 25 times and second thing you do is get pissed off when it then goes to zero.

[plato1976]

Hi, Guys:

 

PWE used to be a 5% position in my portfolio, now it's a 1.5% position

let's say I finally surrender and try to avoid the BK risk, but I still want to keep the same exposure to oil, what's your suggestion of the new position to switch to?

I want a name that's either listed on NYSE or NASDAQ

Mega oil is not a choice b/c I want to:

1) big enough upside when oil price recovers (may not be sth like 10x but should be 2x-3x plus)

2) don't have the risk of going under

 

Any idea?

Thanks!

 

It is a two step strategy, first you imagine your stake going up 25 times and second thing you do is get pissed off when it then goes to zero.

[Green King]

Hi, Guys:

 

PWE used to be a 5% position in my portfolio, now it's a 1.5% position

let's say I finally surrender and try to avoid the BK risk, but I still want to keep the same exposure to oil, what's your suggestion of the new position to switch to?

I want a name that's either listed on NYSE or NASDAQ

Mega oil is not a choice b/c I want to:

1) big enough upside when oil price recovers (may not be sth like 10x but should be 2x-3x plus)

2) don't have the risk of going under

 

Any idea?

Thanks!

 

It is a two step strategy, first you imagine your stake going up 25 times and second thing you do is get pissed off when it then goes to zero.

 

get one of the oil trusts.

[rb]

Hi, Guys:

 

PWE used to be a 5% position in my portfolio, now it's a 1.5% position

let's say I finally surrender and try to avoid the BK risk, but I still want to keep the same exposure to oil, what's your suggestion of the new position to switch to?

I want a name that's either listed on NYSE or NASDAQ

Mega oil is not a choice b/c I want to:

1) big enough upside when oil price recovers (may not be sth like 10x but should be 2x-3x plus)

2) don't have the risk of going under

 

Any idea?

Thanks!

 

I don't think there are any names that will match your 2 conditions. To meet number 1, the company has to be highly levered to the price of oil - so a higher cost producer. Therefore it cannot meet the second condition. All of those companies are at risk of going bankrupt if oil prices stay depressed for long periods of time.

[rb]

 

Second level thinking followed by third level confirmation bias is a dangerous thing.

huh?

[yadayada]

Hi, Guys:

 

PWE used to be a 5% position in my portfolio, now it's a 1.5% position

let's say I finally surrender and try to avoid the BK risk, but I still want to keep the same exposure to oil, what's your suggestion of the new position to switch to?

I want a name that's either listed on NYSE or NASDAQ

Mega oil is not a choice b/c I want to:

1) big enough upside when oil price recovers (may not be sth like 10x but should be 2x-3x plus)

2) don't have the risk of going under

 

Any idea?

Thanks!

 

It is a two step strategy, first you imagine your stake going up 25 times and second thing you do is get pissed off when it then goes to zero.

Make a bucket of the highest quality assets, CHK TET are interesting. Costs are coming down there and management is very good.

[bizaro86]

Hi, Guys:

 

PWE used to be a 5% position in my portfolio, now it's a 1.5% position

let's say I finally surrender and try to avoid the BK risk, but I still want to keep the same exposure to oil, what's your suggestion of the new position to switch to?

I want a name that's either listed on NYSE or NASDAQ

Mega oil is not a choice b/c I want to:

1) big enough upside when oil price recovers (may not be sth like 10x but should be 2x-3x plus)

2) don't have the risk of going under

 

Could you mix and match to get the exposure you want? IE buy XOM and use the dividends to buy LEAPs on something junkier with higher potential upside?

Any idea?

Thanks!

 

It is a two step strategy, first you imagine your stake going up 25 times and second thing you do is get pissed off when it then goes to zero.

[influx]

There have been at least 5 independent indications that they may well have a significant sale in progress.

 

SD

 

Can you please share these?

[yadayada]

I find it hard to see how this whole thing is worth less then 2.6bn$. I saw undeveloped land assets at other companies valued at 600-800$ per acre at a lot of other companies at year end 2014 (after taking a dip already in lower oil prices). These guys have like 3 million acres of undeveloped? And then they also have tax losses, a large developed resource base.

 

If the other 1.4 million acres would go for a thousand per acre (given the infrastrucutre and some of it is pretty high quality), that gets you close to 2.6bn$ already.

 

At this point you would have to say there is a very very large chance this goes to zero to not buy some. If oil recovers this is a ten bagger. And possibly you break even if they get bought out at lower prices. Or if they get slowly liquidated. So three scenarios you get around current market value returned, you lose or you have a multibagger.

 

Then there is also the canadian currency advantage.

 

I guess nobody really knows what this company is really worth, but I doubt the market was that wrong to value this at 15$ at some point? Given that they actually ahve a sizable amount of medium cost assets and top tier management now improving their cost base.

 

If oil recovers this thing probably trades at 1-2x earnings.

 

Also page 14 is interesting

http://www.pennwest.com/investors/presentations-webcasts

IRR's of 30% at 70$ oil.

 

They still have credit facility of several hundred million.

 

I guess we will see.

 

 

[rb]

I've been looking at this for a while. There's a lot of talk of land sales. The thing is that a lot of oil cos are talking about divestures. But who are going to be the buyers of all this land? If the land can be successfully developed they would have developed it, so I don't see a smart player buying this at anything but distressed values.

 

Does this land have any other uses? Can you grow stuff on it?

[Zorrofan]

I've been looking at this for a while. There's a lot of talk of land sales. The thing is that a lot of oil cos are talking about divestures. But who are going to be the buyers of all this land? If the land can be successfully developed they would have developed it, so I don't see a smart player buying this at anything but distressed values.

 

Does this land have any other uses? Can you grow stuff on it?

 

FWIW I don't believe that they own the actual land, just the mineral rights or rather the right to develop them.

 

cheers

Zorro

[rb]

That's what I though too but wasn't sure. If they only own the mineral rights it's even worse.

 

So let's go back to my original thought. Who's actually going to step up and buy these rights? And if somehow someone does come up why would they pay anything but bottom dollar?

[Uccmal]

That's what I though too but wasn't sure. If they only own the mineral rights it's even worse.

 

So let's go back to my original thought. Who's actually going to step up and buy these rights? And if somehow someone does come up why would they pay anything but bottom dollar?

 

Black spruce, balsam, some swamp grass, and turtles, to answer your 'growing' question.

 

No one is going to buy the land at anything other than fire sale prices.  Your question was rhetorical, right?  Oil companies, like anyone else, generally only buy when they get to pay top dollar.  Thats how PWT and other weak operators got to where they are.

 

The only real option Pennwest has is to make enough money at these oil/gas prices to service the debt going forward.  If oil prices go up, they will be fine.  If oil prices stay this low, they will struggle along in a permanent state of doldrums.  PWTs managers have ridden some cycles.  There are others in much worse shape that should fold more quickly.  We have been here before many times, and some survive every cycle - SU, Arx, Imperial oil, etc. 

 

Hardly an optimistic note, but I bought about 12000 shares this week.  I sold everything at a small loss, nearly two months ago to get clear with the tax man.  It is a pretty clear binary outcome at this point.  No options or anything that has a time limit.  And, I will even get a 3.9% yield on my shares, for now. 

[SharperDingaan]

Re: independent indications.

 

Take the standard mosaic approach to assessment, and many would argue it likely that a MOU had been reached regarding a potentially significant asset sale. Due diligence was likely in progress, & there was sufficient confidence in the transaction proceeding that the bare minimum level of IFRS accounting was required.

1. Winnipeg newspaper reference.

2. Discussions with affected employees.

3. Subsequent transfer of an oil lease out of Pen West name.

4. Original July presentation; additional 200M of 2H opex savings. Now removed.

5. Q2 earnings report language; plural sales during the quarter.

6. Mandatory IFRS accounting treatment when there is a sale.

7. Various grumblings around loose lips.

8. No insider buying at these low price levels.

 

Today’s market is very different to what it was in June. As it’s a small patch, most would expect an existing MOU to remain in place for 6 months or so – subject to a price formula using 2H data. If PWT accepts, the sale would probably go through as at June 30; if not - there may be a small break fee to cover costs. In the interim, no further IFRS disclosure is required.

 

Most would expect a wise CEO to also be pursuing other sale options. Our preference is an interim short/medium term royalty sale, & reinvestment in drilling to replace the sold production. When the royalty term is over, the residual production comes back.

 

It just stands out because of todays depressed views, it is not necessarily bullish.

We don’t think it unrealistic, but it’s not done until the fat lady sings.

 

SD