PWE - Penn West Petroleum

[Cardboard]

That is what I meant. It is not listed on that list nor on the core assets, so where is it?

 

Why has the mid-point of production forecast declined by 7,000 boe/day on Sept 1 or with only 4 months left in the year? Reduction in capex alone? Unforeseen problems in the fields? Shut-ins?

 

Simply does not add up.

 

Cardboard

[FB]

IMO, there is an asset sale: Spearfish/Waskada in Manitoba, but for some reasons it is not reported yet.

 

The asset is not listed in the non-core assets on the presentation and the change in production guidance is too large to be explained just by a reduction in capex for what is left of H2 vs decline rates.

 

Cardboard 

 

Hi, fairly new to that one: I can't see any reference to the spearfish / waskada assets in any of the reports over the past 2 years. I can see however a significant write down in Manitoba in the 2013 restated report for "lower estimated reserve recoveries in Manitoba" ; could spearfish / waskada have been written down and be included in the "other" category of non core assets in their recent release?

They might not be in a position to disclose an on going sale for various reasons but in that case I would think that the asset should still be in their reports. Removing it does not make sense (or is an amateurish mistake from a disclosure standpoint)

thanks,

[Cardboard]

You are right, it is tough to find details on it but, they definitely still own it:

 

http://www.pipelinenews.ca/features/drilling-exploration/manitoba-expects-significant-decline-in-activity-1.1953491

 

https://globenewswire.com/news-release/2014/12/11/690628/10112050/en/TUNDRA-OIL-GAS-LIMITED-ACQUIRES-7-000-BARRELS-OF-ADDITIONAL-MANITOBA-OIL-PRODUCTION.html?print=1

 

Also, it shows in the Annual Information Form that they have 458 net producing oil wells in Manitoba out of 7,047. I have no idea where these wells stand in their life (decline curve) and productivity vs the rest but, out of 63,222 boe/d produced of liquids in Q2, it would mean proportionally 4,100 boe/day.

 

It could be less of course since they have not deployed capital out there in a while but, EOG was producing 7,000 boe/d in that area from 550 wells and PWT is considered the other big guy.

 

In any case, it is more than 1,000 boe/d or the total for the Other Non-core asset category in the presentation. By the way, there is no legal or prescribed form to make a public presentation unlike financial statements.

 

Why the analysts didn't ask about that on the call or the quite large reduction in forecasted production is quite telling IMO on how much they know about the company or said differently, how little interest they have left.

 

Cardboard 

[investor-man]

I just wrote investor relations asking (basically plagiarized FB's comment) above. Hopefully I'll hear back, and I'll post the response.

[influx]

I just wrote investor relations asking (basically plagiarized FB's comment) above. Hopefully I'll hear back, and I'll post the response.

 

I was going to propose that. Thanks. Please share!

[influx]

You are right, it is tough to find details on it but, they definitely still own it:

 

http://www.pipelinenews.ca/features/drilling-exploration/manitoba-expects-significant-decline-in-activity-1.1953491

 

https://globenewswire.com/news-release/2014/12/11/690628/10112050/en/TUNDRA-OIL-GAS-LIMITED-ACQUIRES-7-000-BARRELS-OF-ADDITIONAL-MANITOBA-OIL-PRODUCTION.html?print=1

 

Also, it shows in the Annual Information Form that they have 458 net producing oil wells in Manitoba out of 7,047. I have no idea where these wells stand in their life (decline curve) and productivity vs the rest but, out of 63,222 boe/d produced of liquids in Q2, it would mean proportionally 4,100 boe/day.

 

It could be less of course since they have not deployed capital out there in a while but, EOG was producing 7,000 boe/d in that area from 550 wells and PWT is considered the other big guy.

 

In any case, it is more than 1,000 boe/d or the total for the Other Non-core asset category in the presentation. By the way, there is no legal or prescribed form to make a public presentation unlike financial statements.

 

Why the analysts didn't ask about that on the call or the quite large reduction in forecasted production is quite telling IMO on how much they know about the company or said differently, how little interest they have left.

 

Cardboard

 

It makes me wonder why you havent asked PW's IR instead of wondering ? :)

Or maybe you did :)

 

 

Thanks for the discussion so far.

[Cardboard]

I did ask them a few questions before. And they have answered with useless responses. I hope that they are part of the 400 being cut from their fat G&A.

 

Cardboard

[Cardboard]

While it is very tough to remain optimistic, look at the latest deal made by Crew Energy:

 

http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aCR-2309942&symbol=CR&region=C

 

That is $222,222 per boe per day. For heavy oil!!!

And $50 per boe of 2P reserves

 

I am not sure what is on the undeveloped acreage that they are leaving to the buyer but, keep in mind that it is undeveloped, not producing and still heavy oil. So assets still sell at pretty high prices.

 

Cardboard

[sculpin]

While it is very tough to remain optimistic, look at the latest deal made by Crew Energy:

 

http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aCR-2309942&symbol=CR&region=C

 

That is $222,222 per boe per day. For heavy oil!!!

And $50 per boe of 2P reserves

 

I am not sure what is on the undeveloped acreage that they are leaving to the buyer but, keep in mind that it is undeveloped, not producing and still heavy oil. So assets still sell at pretty high prices.

Cardboard

 

Must be some sort of Social Media company sitting on that acreage given the valuation which was paid :o :o :o. Now i gotta know who bought this?

[rb]

Must be some sort of Social Media company sitting on that acreage given the valuation which was paid :o :o :o. Now i gotta know who bought this?

So you could short it?

[sculpin]

Must be some sort of Social Media company sitting on that acreage given the valuation which was paid :o :o :o. Now i gotta know who bought this?

So you could short it?

 

Ask them what the hell they're thinking. There's probably land sales/companies aval for 5% to 10% of that flowing bbl valuation in this market.

[bizaro86]

While it is very tough to remain optimistic, look at the latest deal made by Crew Energy:

 

http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aCR-2309942&symbol=CR&region=C

 

That is $222,222 per boe per day. For heavy oil!!!

And $50 per boe of 2P reserves

 

I am not sure what is on the undeveloped acreage that they are leaving to the buyer but, keep in mind that it is undeveloped, not producing and still heavy oil. So assets still sell at pretty high prices.

 

Cardboard

 

I wouldn't be surprised if the crew assets have a bunch of wells that are shut-in that could be re-activated. That is not uncommon in heavy oil deals, and would make the metrics look much better. Otherwise they got an unbelievably good price.

[influx]

While it is very tough to remain optimistic,

 

Why? Has anything changed based on your earlier assessment? Or is it in your mind only? Just wondering, maybe this is maximum pessimism :)

I see First Eagle are still holders of PWE as of June 30th with nearly 5%

http://www.nasdaq.com/symbol/pwe/institutional-holdings

 

I dont know who Key Group are, I'll try to find more. They have increased nearly 5 million shares (~1% of outstanding). It will be interesting to see as of Sep. 30th.

 

BTW, some recent articles:

https://rbcnew.bluematrix.com/docs/pdf/8821abfb-dc1a-44be-9ac3-d6239c53fa1d.pdf?

There was one more from Morning Star I think and I cannot find it now.

 

I am still holding dry powder and contemplating of entering this one big. At least 10-20 % of portfolio

[influx]

http://pennwest.mediaroom.com/index.php?s=27585&item=135257

 

Penn West announces sale of Mitsue properties for $192.5 million

Sep 15, 2015

[influx]

While it is very tough to remain optimistic,

 

Why? Has anything changed based on your earlier assessment? Or is it in your mind only? Just wondering, maybe this is maximum pessimism :)

I see First Eagle are still holders of PWE as of June 30th with nearly 5%

http://www.nasdaq.com/symbol/pwe/institutional-holdings

 

I dont know who Key Group are, I'll try to find more. They have increased nearly 5 million shares (~1% of outstanding). It will be interesting to see as of Sep. 30th.

 

BTW, some recent articles:

https://rbcnew.bluematrix.com/docs/pdf/8821abfb-dc1a-44be-9ac3-d6239c53fa1d.pdf?

There was one more from Morning Star I think and I cannot find it now.

 

I am still holding dry powder and contemplating of entering this one big. At least 10-20 % of portfolio

 

of course brokerage houses are generally bull biased and here is RBC relation to PWE, "RBC Capital Markets acted as our exclusive financial advisor on this disposition." from the latest news

[Cardboard]

"Why? Has anything changed based on your earlier assessment? Or is it in your mind only? Just wondering, maybe this is maximum pessimism :)"

 

Well, I certainly didn`t expect this double dip in oil prices that has started in early July following fundamentals that were and still are improving. Going into the high $40`s due to unproven decline in China demand, ok. Going below $40 and sticking for a long time in the low $40`s, no.

 

Q3 results are going to be terrible for most E&P`s and Penny West in particular. This is not good for the Debt to trailing EBITDA covenants which I highly doubt the banks will relax any more.

 

Another concern is the current marketability for assets which is crucial for Penny West if oil is to remain low for longer. Although, they have obtained a pretty good deal here IMO: price per boe/d is quite good considering the horrible opex cost.

 

The banks and notes holders will also be pretty happy to see that they are almost done with their $650 million asset sale commitment 1 1/2 year ahead of time. What is likely now is that they will ask for some more in future talks.

 

I think it will also prove to doubters why insider buying has been nil since May with the end of Q2 reporting and this deal. Unfortunately (or fortunately), I also think that a Spearfish/Waskada deal is in the works and there have been a few rumours about Weyburn which if true would keep insiders under blackout.

 

Now my remaining concern is about hedging. Back in the late 90`s, the banks were great at forcing gold miners into hedging programs at $250 to $300 an ounce that prevented them from benefiting from the eventual rise in the gold price. Penny West has already hedges in place at low prices ($50) for 20% of production and I hope that they won`t go crazy and hedge a lot more at these crazy levels or rush into hedging as soon as prices hit $60.

 

Cardboard

[sculpin]

Post from Nawar on the Mitsue sale...

 

http://www.investorvillage.com/groups.asp?mb=19160&mn=130&pt=msg&mid=15294186

 

Penn West announces sale of Mitsue properties for $192.5 million

 

  I am very glad to see this transaction, relative to where we are trading this translation is accretive on all metrics. Penn West was getting zero credit for its non-core assets, and when I say zero I mean literally zero, at $2.6B EV you can argue that the core was valued at $48K per flowing ($2.6B/54K) and all the rest was worth !$0. Most importantly as they continue to divest non-core assets the company will reduce debt, improve its operating metrics and will increasingly be valued on its core assets, which are vastly more valuable.

 

I have valued the following non-core asset base at $1B to $1.2B or roughly at $32.3K per flowing:

 

Swan Hills

NE BC & NW AB

East Central AB

Mitsue

PROP

Weyburn

Other 8,000 boe/d

8,000 boe/d

7,000 boe/d

4,500 boe/d

3,000 boe/d

2,500 boe/d

1,000 boe/d 76%

8%

41%

78%

97%

100%

55%

Total Non-Core (1) 34,000 boe/d 56%

 

This transaction was done at a higher multiple then what I have projected, which greatly enhances their chances of raising at least $1B from these assets sales in the next 12 months. The next asset to go will likely be Weyburn, and this asset is worth $200m to $250m, hence at mid-point Mitsue and Weyburn would net them $417m. If we round down to $400m those assets would reduce debt from $2.2B to $1.8B and still leave them with 27K barrels to divest.Those are declining assets so the faster they divest them the better, however with better oil price outlook in 2016 this could be an offsetting factor. At conservative multiples ranging from $22K per flowing to $30K per flowing they would raise $600m to $800m from those assets, thus raising $1B to $1.2B in total from their non-core assets sales. At midpoint those assets would reduce their debt to $1.1B, while still leaving them with potentially valuable non-core acreage such as the Duvernay (below the Cardium) which would ultimately bring down their debt to below $1B.

 

As I highlighted before the emerging Penn West core will be very comparable to Whitecap. Whitecap is carrying around $800m in debt with 40K barrels in mostly Viking and the Cardium production. Penn West core would carry $1.1B in debt with 54K barrels in mostly Viking and Cardium production, thus both companies would carry 20K in debt per barrel. Whitecap is valued at $100K per flowing, however Whitecap is hedged |(albeit less so going forward) and has slightly lower operating costs, thus if Penn West core is to be valued at $80K per flowing by 2017, the resulting entity would be worth $6.4 per share and probably be worth more if they opt for a transaction at that point.

 

I will continue to pressure the management/bored to divest non-core assets and further focus the company around the core, this is a double win strategy for shareholders as divesting the non-core reduces debt (and thus reduces covenant violation risk) while it helps unlock the value of the company core asset base. Granted if they would have divested more aggressively in 2013 to 2014, they could have probably raised an additional $500m from the non-core, but better late then never, we have no choice but transact in a low oil price enviroment at this point.

 

Regards,

Nawar

[Cardboard]

Looks like Cardinal Energy was the buyer along with a private company

 

http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aCJ-2311175&symbol=CJ&region=C

 

Cardboard

[Wilson-TPC]

The asset sale is a big positive. On current flowing boe/d multiples, PWE could be worth $1.16 from current prices.

[plato1976]

yet the market just ignores (almost) - it still looks like on its road to zero

 

The asset sale is a big positive. On current flowing boe/d multiples, PWE could be worth $1.16 from current prices.

[Cardboard]

"The asset sale is a big positive. On current flowing boe/d multiples, PWE could be worth $1.16 from current prices."

 

Care to elaborate on how you are doing your math???

 

Cardboard

[Wilson-TPC]

I am really sorry, i made an excel booboo when I calculated implied share value. I'm actually getting 0.62 per share versus 1.16.

 

Current implied per flowing boe/d is $29k boe/d USD.

 

PWE has pre divestiture production of 91,164 boe/d.

 

Implied boe/d of $29,058.84.

 

Asset sale of C$43,000 or $32,452 USD.

 

$32,453 x 91,164 = 2.958 billion versus current enterprise value of 2.649 billion.

 

The difference divided by 502 million shares gets you .62.

 

 

[constala]

@Wilson-TPC, $32k boe/d may be right for non core assets; with a range of lets stay 28k-40k; but for Core Assets you should use a higher number, as netback are much higher strategic value etc...probably up to $60k boe/d...I do no think it is appropriate to a single blended rate based on a fairly distressed non-core assets sale to assess the whole PWE boe/d.

[Uccmal]

Wilson, I am confused by what your saying in regards to the asset sale.  Are you suggesting the value of the company has dropped by 0.62 due to the asset sale. 

 

If I apply $50,0000 boe/day to existing production (just a number - no particular rationale behind it) and multiply that by 90000 boe/day production I get a fairly conservative asset value per share of

$9.00/ share.  I am assuming these asset sales will not have much effect on actual production - they can just add production in their core areas. 

 

In general, they seem to be on the right track.  A rise in oil prices to 55 US would ensure their survival.  I have bought back in recently after a tax wash sale.  About 40000 shares all told.  I will stop at this point.  The possibility of Creditor protection is still very real. 

 

Funny that Nawar mentions Whitecap.  I have a larger position in WCP than PWT.  WCP is actually doing okay under the existing price regimen.  As he mentions they are hedged (for now) and generating enough cash to meet their obligations.

 

The final nail in the low price coffin is coming this quarter as higher priced hedges come off - speaking of the Non-sovereign industry in general.

[Uccmal]

Another easy way to value PWT is to take 192M * 90000/4500 ~ 8 per share minus $4.00 per share debt = $4.00 per share. 

 

In my prior post I forgot the debt - including debt would give you $5.00/share. 

 

Taking out all the debt is not realistic since all these assets use debt to operate but it sort of puts a floor on the asset value of each share barring bad luck which lands them in creditor protection.  The creditors would make out like bandits at the moment, except they dont want the assets.