PWE - Penn West Petroleum

[SmallCap]

Thanks Kfh227

[plato1976]

YES, just sell those marginal acre

 

 

Hard to find low cost producers selling at half of book

 

U buy Pennwest hoping it will turn to be one.

[yzstevie]

Just thinking in terms of more macro risks, what are the chances of oil going down further and staying down for quite some time, i.e. what if U.S. supply continues to be strong, or no action from OPEC on cutting down production, or global demand continues to be weak?  What are the chances of a fundamental change in the price/demand of oil in the near future, i.e. alternative energy like solar?  Think it is fairly clear that PWE is a bargain for company-specific issues, but just wondering about the overall industry/macro risks. 

[Myth465]

If oil stays in the 70s or 80s then its not as cheap as it appears.

You have to look at marginal production though, and the fact that demand is not as elastic.

Supply also declines significantly for shale plays.

 

In addition most middle east countries and Russia have budgets based on $90 - $100 oil.

 

[Andy Dufresne]

Russia is very much dependent on high oil prices, and its production costs are only going to go up as the old Soviet fields developed in Western Siberia dry out and they have to start drilling in Eastern Siberia.

[Cardboard]

It is funny that people are now talking about a glut of oil. What was the situation just 3 1/2 months ago? And if there is so much oil in the U.S. then why is WTI pricing not collapsing further? After all, it is Brent that has dropped the most, meaning that it is international oil having a hard time finding a home above $90/barrel. $90/barrel seems like a price that buyers and sellers are quite willing to accept in the U.S.

 

Also, while it is true that the U.S. has been producing more oil, these new barrels are all coming from newly developed high decline rate wells. This means that a lot of new wells have to be drilled to simply maintain current production. These are not all cheap wells as highlighted by a recent forecast from Continental Resources with significant cost increase. And what happens to capex budgets when oil executives all get worried by the same information that we are being fed daily at the moment? Don't you think that they will face pressure from the investment community to go more into some form of scarcity budget?

 

Lower priced oil means more consumption. It means less "tax" on the economy. It means that more demand for oil will materialize since substitutes become unattractive.

 

Cardboard

 

 

[longlake95]

Cardboard - agreed. With higher marginal cost of production from shale oil, compared to conventional wells, there's a floor under oil. While lower oil is not good for any of the producers, good returns at $90 oil are there for the better run co's. PWT, is righting the ship. With lower oil, we are now in a double wait and see mode for PWT. The market will want to see higher prices AND management delivering on the biz improvement initiatives - reduced capex, assts sales, and lower well costs. Apparently Wilbur Ross is sniffing around the Canadian oil patch. That's probably the best news yet! It means we are closer to the bottom then the top. He must feel just fine about the future of oil.

 

LL

 

May add to PWT this week. Doesn't the Kuwait purchase in Duv, at $15k/ acre add legitimacy to PWT's value?

[yzstevie]

Wow.  The drop continues.  One thing I am curious about is why haven't the insiders stepped in to purchase shares?  Chairman has bought at much higher levels before.  Wonder why they haven't stepped in yet?

[SmallCap]

Wow.  The drop continues.  One thing I am curious about is why haven't the insiders stepped in to purchase shares?  Chairman has bought at much higher levels before.  Wonder why they haven't stepped in yet?

 

I believe they are prohibited from buying right now because of the investigation into accounting issues. I believe that will continue to sometime this month

[longlake95]

Management can't buy now - here's a clip from Sept 18th PR, relating to the accounting restatement:

 

"As previously disclosed, the ASC and the Ontario Securities Commission have issued management cease trade orders (the "MCTOs") that prohibit the directors and executive officers of the Company from trading in or purchasing securities of the Company, subject to certain limited circumstances. The MCTOs do not affect the ability of other persons to trade in the common shares or other securities of the Company. The Company understands that the MCTOs are likely to expire or be revoked shortly after the completion of the restatement and the issuance of the Q2 2014 Interim Filings."

[SmallCap]

So i get that the price of oil can go down further and stay there for months even a year or two but I have a hard time understanding oil being below 90 long term, at least as i look at the world. I also understand my inability to predict the price of oil especially in the short term.

 

So what I am trying to understand is how low a price point and for how long can PWE survive for?

 

Assuming no asset sales... what is the really bleak scenario and how long can they survive? Assume oil stays at say 80, how long before bankruptcy?

[yzstevie]

Management can't buy now - here's a clip from Sept 18th PR, relating to the accounting restatement:

 

"As previously disclosed, the ASC and the Ontario Securities Commission have issued management cease trade orders (the "MCTOs") that prohibit the directors and executive officers of the Company from trading in or purchasing securities of the Company, subject to certain limited circumstances. The MCTOs do not affect the ability of other persons to trade in the common shares or other securities of the Company. The Company understands that the MCTOs are likely to expire or be revoked shortly after the completion of the restatement and the issuance of the Q2 2014 Interim Filings."

 

Didn't the company have already completed their accounting review and filed 2Q14 filings last month? The cease trade order is still in effect? 

[alertmeipp]

So i get that the price of oil can go down further and stay there for months even a year or two but I have a hard time understanding oil being below 90 long term, at least as i look at the world. I also understand my inability to predict the price of oil especially in the short term.

 

So what I am trying to understand is how low a price point and for how long can PWE survive for?

 

Assuming no asset sales... what is the really bleak scenario and how long can they survive? Assume oil stays at say 80, how long before bankruptcy?

 

Their pricing assumptions are all posted.

 

If we have 80 oil, we still are looking at  700 plus millions cash flow if u assume cost and loonie do not come down.

 

Thats from my recollection.

 

I think the market is pricing in much lower wti pricing.

 

 

[plato1976]

the problem is that the cash flow can barely cover the cost unless they aggressively sell their holdings

this is my understanding

 

So i get that the price of oil can go down further and stay there for months even a year or two but I have a hard time understanding oil being below 90 long term, at least as i look at the world. I also understand my inability to predict the price of oil especially in the short term.

 

So what I am trying to understand is how low a price point and for how long can PWE survive for?

 

Assuming no asset sales... what is the really bleak scenario and how long can they survive? Assume oil stays at say 80, how long before bankruptcy?

 

Their pricing assumptions are all posted.

 

If we have 80 oil, we still are looking at  700 plus millions cash flow if u assume cost and loonie do not come down.

 

Thats from my recollection.

 

I think the market is pricing in much lower wti pricing.

[longlake95]

 

Cease trade order was cancelled on September 23, 2014 by the Alberta Securities Commission. So it would be nice to see some inside buying!

[Cardboard]

Can't trade if you are aware of non-public information. Very likely the case now with the closing of Q3 and compilation of financial statements. Somebody knows the black out timing for insiders? Possibly also some asset sale in the making.

 

There has been some aggressive shorting and likely naked into these beaten up oil and gas stocks that we follow. There was an article in recent days I believe at Motley Fool discussing how you can easily introduce fear by selling aggressively in the morning. Do this day after day and you get a 2008 style panic as we are experiencing into these names.

 

Down 50% in less than 4 months for many of these names is unreal. Even the internet bubble pop which was the largest bubble in history did not deflate that fast. These guys are producing oil which is not going out of style any time soon.

 

Cardboard

[doc75]

Can't trade if you are aware of non-public information. Very likely the case now with the closing of Q3 and compilation of financial statements. Somebody knows the black out timing for insiders? Possibly also some asset sale in the making.

 

Down 50% in less than 4 months for many of these names is unreal. Even the internet bubble pop which was the largest bubble in history did not deflate that fast. These guys are producing oil which is not going out of style any time soon.

 

I know a lot of companies black out from end of quarter until the release. Not sure for PWT.

 

I generally agree with you about the severity of the decline etc., but to play devil's advocate:    I think a lot of people are looking at these O&G co's as an elaborate Ponzi scheme.  This isn't something new. Just look at the beginning of this thread to see this type of scepticism. A large part of it is warranted.  I think the decline in oil  has caused a repricing of the sector in a similar way that tech was repriced in 2001-2001.  It's not a perfect comparison because of course in the tech boom you had piles of companies at lofty valuations that never had any cash flowing through the door. Different story here, but the oil price decline seems to have been a trigger to make people rethink the entire business model.  God knows many (most?) of these companies have somehow managed to destroy investor capital even with oil over $100, all the while making lots of managers very wealthy.

 

[Uccmal]

 

Cease trade order was cancelled on September 23, 2014 by the Alberta Securities Commission. So it would be nice to see some inside buying!

 

What do you expect?  Rick George is down at least 2 million from his purchase prices.  Maybe he doesn't want all his money in Penn West?  He never sold when he was up 3-4 million.  I guarantee he knows this company inside out. 

[alertmeipp]

 

Cease trade order was cancelled on September 23, 2014 by the Alberta Securities Commission. So it would be nice to see some inside buying!

 

Might have something to do with quarter end quiet period and/or asset sales pending. Remember they are dual listed @ both TSX and NYSE.

 

They bought significant amount @ 9 and 11 USD, PWE is looking better now than then. Not selling a single share since then tell you what they think.

[yzstevie]

Anyone looking at buying call options on the name?  I'm looking at the Jan 16 ones and they seem very illiquid?  What are some good call options to buy? 

[Cardboard]

If you knock out $1.5 billion from their net debt of $2.3 billion to account for non core assets (Duvernay, Cordova, etc.), this thing is trading more cheaply than even Lightstream on an Enterprise Value to cash flow basis. Below 4 times.

 

Of course, cash flow has moved down with no hedges (who knows if they got some new ones after Q2 end) and a decline in WTI, but it is the same for LTS, LEG and others.

 

Just shows how amazingly cheap this company has become.

 

Cardboard

[tombgrt]

Anyone looking at buying call options on the name?  I'm looking at the Jan 16 ones and they seem very illiquid?  What are some good call options to buy? 

 

I was also wondering about that, in case the stock or sector plummeted even further. I think there was a 30% spread on the $5's yesterday.

[doc75]

A relevant article on Bloomberg:

 

http://www.bloomberg.com/news/2014-10-07/shale-boom-tested-as-sub-90-oil-threatens-u-s-drillers.html

 

Excerpt:

 

"Crude prices might not fall enough to shut in production. About 70 percent of U.S. reserves would remain economic with global prices at $75 a barrel, according to Wood Mackenzie, an industry consultant based in Edinburgh.

 

OPEC also may prevent further declines because members need high prices to support social spending. Saudi Arabia needs $87.63 a barrel to balance its budget, compared with $66.50 for the United Arab Emirates and $92.96 for Iraq, the International Monetary Fund estimates."

 

 

[KCLarkin]

Down 50% in less than 4 months for many of these names is unreal. Even the internet bubble pop which was the largest bubble in history did not deflate that fast. These guys are producing oil which is not going out of style any time soon.

 

This doesn't seem particularly unreal. Stocks are volatile. Even for stable big-caps, 50% moves are very common.

[yzstevie]

Found this at another board for a recent call with Roberts.  Take it for what it's worth...

 

******************

Discussion with Roberts:

 

-He is very confident in the outcome of the turnaround, they are making good progress.

  Still expect to grow production at these price levels.

 

-They have planned for a lower price environment

 

-Market for properties is still very good, but will not sell any asset at just any price...want fair value

 

-Will be more thoroughly addressing debt in next earnings and how they plan to take it down.

  I stressed the company needs to give more detailed information on their plan to address this.

 

-I asked him to stop dividend and buy back stock(at this discount to book, not forever)

  He asked me if I would be OK with that, I said yes. I suggested he should survey his    institutional buyers on that point.

 

-Said they are taking even more costs out and expect that to continue.

 

I did give him an ear full on the re-statement and how it was handled/timing, he said it was unavoidable because it happened as a result of a new CFO coming to the company.