PWE - Penn West Petroleum

[StevieV]

I have a large position in PWE.  I didn't expect the price to swoon back to where it is today, but think the company will be fine.  There have been a series of things holding the stock price back.  First there was the Ho Cheuk selling.  Then BAT concerns.  Now the price of oil. 

 

The Ho Cheuk selling was temporary, and not a problem.  I think the BAT risk is small, but could be a problem.

 

PWE is well positioned to withstand some oil price weakness.  They have fixed their balance sheet.  Significant hedges for this year.  Low operating costs.  However, the better appreciation scenarios require higher oil.

 

Hoping for a good report on Wednesday.  Have gotten beaten up in the Canadian oil patch in the last month or so.  Added a small amount to PWE this week.

 

[Joe689]

Good report IMO.  Cardium and Viking results are encouraging and Mannville is mixed. Debt will be near 400 by end of Q1.  Seemed very business as usual which is good thing I guess.  No real surprises.  No more hedges since January update.  Finally some positive reaction today.  Sooner or later we will need to be assigned a valuation closer to our peers.

[SharperDingaan]

Great report, but they could use a little more 'proofing' in their MD&A process.

 

Per the 4th quarter highlights, p23 of the MD&A, there was a loss of 232M?

The Annual Consolidated Financial Statements, p4 show a full year loss of 696M. The Q3 Interim Consolidated Statements, p24 show a PTD loss of 650M.

 

The actual Q4 loss was 46M after tax; and caused primarily by the Note 10 change in estimate (75M), & the Note 8 additional impairment of (65M). They were quite profitable @USD 47 oil - as they were last quarter.

 

Nice to see the projected 2017 exit rate at 32,250, Vikings performance at 25% above industry, & 10% cost inflation built into the expense numbers. The falling decline rate and increase in expected margin also speak well to the future. 

 

SD 

 

[Joe689]

Continued pressure on this name.  Been some time now.... When will the market give it a fair peer valuation?  Good news is another good report is likely coming in next few weeks.

 

Big insider buy too, 250K at 1.60USD. 

[Joe689]

Reloaded a trading portion at 1.54. 

[Uccmal]

Reloaded a trading portion at 1.54.

 

Trying to trade this has been a bit frustrating so I have resigned myself to just holding my position for now, and doing nothing.  I dont expect anything from the first Q rpt. except more of the same which is good I guess. 

 

Oil stocks are not doing much right now.  This may persist a few months to a couple of more years.  Whenever, I am in the middle of one of these stagnant situations I forget how long they last.  The seem interminable while you are in the middle, but actually look fairly short in hindsight.  The same with the perpetual bull market.  Nothing to do, and nothing to buy, without going way down he quality curve. 

[SharperDingaan]

Reloaded a trading portion at 1.54.

 

Inclined to agree with Uccmal, but we think we'll see positive earnings this time out (end of the noise).

At current product pricing they've been making around 47M/quarter (Q3, & Q4 2016) net of noise adjustments. They will also do a little over a $1/share in cash flow for 2017, based on existing announcements.

 

We think the tipping point for a re-rating, is a show of positive EPS.

Hopefully it's the Q1 2017 numbers.

 

SD   

[Joe689]

Finding some strong support the past couple days.  Reducing our leverage to oil was a good idea.  This is looking more and more to be a high quality oil name in a uncertain oil market.    Kudos to mgmt.  Unlike the mgmt for these shale drillers who are selling bridges to nowhere.    This is a nice wake up call to them.    This might be music to the Saudi's ears as they know they will extend anyways.      The financing of these shale plays should slow.

 

BTW, when is Trudeau going to stand up to Trump and for his economy.  He could unlock so much value for Canada while not getting pushed around by Trump

[Uccmal]

Finding some strong support the past couple days.  Reducing our leverage to oil was a good idea.  This is looking more and more to be a high quality oil name in a uncertain oil market.    Kudos to mgmt.  Unlike the mgmt for these shale drillers who are selling bridges to nowhere.    This is a nice wake up call to them.    This might be music to the Saudi's ears as they know they will extend anyways.      The financing of these shale plays should slow.

 

BTW, when is Trudeau going to stand up to Trump and for his economy.  He could unlock so much value for Canada while not getting pushed around by Trump

 

What do you propose Trudeau do?  For once I think the best action is to sit back and watch the game unfold.  Trump is just throwing out an endless stream of nonsense. 

[Joe689]

 

What do you propose Trudeau do?  For once I think the best action is to sit back and watch the game unfold.  Trump is just throwing out an endless stream of nonsense.

 

Maybe you are right and he should remain calm since the attacks are beyond oil and against the dairy and lumber as well.  Trump is all over the place.  But in terms of oil, he needs to get his top export to other buyers, including domestically.  Build some more pipelines, and let the US know that if they do not want his oil, others will.  There are signs of more pipeline approvals coming so maybe it is a work in progress.

[StevieV]

I agree.  No reason for Canada to argue with President Trump at every utterance.  Just let him go and he'll probably move along on his own.  Of course, that doesn't mean Mr. Tredeau should stick his head in the sand and not be prepared.  I just don't think picking fights early on will be fruitful and is probably counterproductive.

 

I am heavy into Canadian oil and gas, which hasn't been that rewarding so far this year.  I don't think the BAT has much of a chance of happening, but US oil storage has not moved like I would have hoped.  I think that PWE and some other Canadian oil companies are attractive here and will do well from here over the next year or few.  Looking forward to PWE's 1st quarter report.

[Uccmal]

 

What do you propose Trudeau do?  For once I think the best action is to sit back and watch the game unfold.  Trump is just throwing out an endless stream of nonsense.

 

Maybe you are right and he should remain calm since the attacks are beyond oil and against the dairy and lumber as well.  Trump is all over the place.  But in terms of oil, he needs to get his top export to other buyers, including domestically.  Build some more pipelines, and let the US know that if they do not want his oil, others will.  There are signs of more pipeline approvals coming so maybe it is a work in progress.

 

The PM is in a balancing act.  To get re-elected he needs to be seen to be doing something good for the environment, AND simultaneously looking after our oil and gas resources.  Nat. Gas pipe to the West coast is a reasonable compromise.  It gets us off total US dependence and is not totally unpalatable to environmentalists. 

 

It is interesting that Nat. Gas prices have stayed high.  I am working on the assumption that there are more and more small gas power plants coming online, as a cheaper, cleaner replacement for coal.  I toured a cogen. plant a few years ago North of TO.  It used natural gas to heat water for nearby buildings, generated power for the grid, and was automated, with no employees on site. 

[Joe689]

Near our March low of 1.42.  Sigh....  Enterprise value near 1.1B and producing 200M in free cash flow each year.    If we chose to just sustain production, how much would it cost from that free cash flow?

[Uccmal]

Near our March low of 1.42.  Sigh....  Enterprise value near 1.1B and producing 200M in free cash flow each year.    If we chose to just sustain production, how much would it cost from that free cash flow?

 

Dunno, Whitecap is within 10% of its lows from early 2016.  Since then they have expanded production, cut costs, become EPS profitable, are well hedged at prices higher than today.  I wonder if some of these companies will take realized gains on their hedges.  Perhaps not yet. 

[StevieV]

PWE reports earnings on the 4th.  Interested to see what they say.  I believe there have been some small dispositions in the 1st quarter, so there should be an updated debt number.  However, I am more interested in the production, realized prices and, ultimately cash flows.

 

Disappointing to see PWE back at and under $1.50 USD, but I think the company is in good shape here.  I think a BAT or tarriff is unlikely and concerns in that regard should be disippating.  I expect OPEC will extend and hopefully we will finally get some good inventory numbers.  Less certain about that as I have been wrong about inventory and oil pricing so far.

[Joe689]

Yes, hopefully Thursday's report will be an inflection point.    If not, French really needs to find a way to unlock value.  And that probably means to sell out in one way or another and take advantage of our low cost acreage. 

[SharperDingaan]

Congratulations gentlemen.

 

Nice to see the positive EPS, gains on disposition, & that high royalty income.

It infers that the market value of assets is now biasing above the carrying value of the assets, & that positive MTM adjustments are building.

 

Nice to see the dispositions over, the small land purchase, and the effective financial risk management.

 

And very nice to see the 2017 growth projection in the double digits, & the forward implications of that growth;

specifically the 'k-g' of the dividend growth model.

 

May we all do very well.

 

SD

 

 

 

[Uccmal]

Good results.  The stock wont do anything with the present backdrop. 

 

I am facing the same issue with Whitecap, which just had a blowout quarter and is signaling a dividend increase and a stock biyback.  Whitecap actually stated in their earnings release that their stock price is too low, and they will be applying to the TSX to buy back stock.  And their management is careful.  They wouldnt have said it if it wasnt their intention. 

 

PWT is similarly positioned.  Should oil prices go higher then these stocks will pop.  If prices remain lower for longer forever, the stocks should at least be mediocre investments. 

[Joe689]

Not too much volume lately.  Everybody has either placed their bets or everybody is avoiding betting until further direction from the oil market.  Analyst day coming up should be good for us.  This company has dramatically changed and it is time to summarize what we have here.  Looks to be a web cast, so hoping the new presentation gives us even more detail.  Still patiently waiting for a long coming re-rating.  It was nice to see another sizable insider director buy.

[Joe689]

Think we have a coiled spring here.  Been lots of consolidation the past few months.  Now low volume, high volatility.    Just going to take some fund flow into this sector and let this spring go.

[chrispy]

There is a vote to change the company's name:

 

"

Dear valued shareholder,

 

I wanted to personally thank you for your ongoing support as we undertook necessary changes across all aspects of the company, including: focusing our asset base, meaningfully reducing our debt, and consolidating our leadership structure. We’re excited to embark on a new chapter. To acknowledge these transformative changes, we are taking a new name and a fresh look, rooted in a set of values emphasizing discipline, accountability and relentless passion to drive us forward. Our executive team and our board believe Obsidian Energy will distinguish us as we move forward.

 

Today, our company is an intermediate-sized oil and gas producer with a high-quality set of assets producing roughly 30,000 boe per day, the right strategy to deliver bottom-line results, and an entrepreneurial spirit that will allow us to succeed in our evolving industry. I’d like to welcome you to this new company and invite you to be part of our journey that is poised to increase shareholder value through organic double-digit self-funded growth.

-David L. French

"

 

Additionally votes for:

 

"

SHAREHOLDERS WILL BE ASKED TO CONSIDER AND VOTE ON THE FOLLOWING MATTERS:

 

Appointment of Auditor: Shareholders will be asked to appoint Ernst & Young LLP as the Corporation’s

auditor, at a remuneration to be fixed by the directors of the Corporation. Information respecting the

appointment of the auditors may be found under the heading “Matters To Be Acted Upon At The Meeting -

Appointment of Auditor” in the Circular.

 

Election of Directors: Shareholders will be asked to elect eight directors for the ensuing year. Information

respecting the election of directors may be found under the heading “Matters To Be Acted Upon At Meeting –

Election of Directors of Penn West” in the Circular.

 

Executive Compensation: Shareholders will be asked to hold a non-binding vote on the Corporation’s

approach to executive compensation, which is more fully described under the heading “Matters To Be Acted

Upon At The Meeting – Non-Binding Advisory Vote on Approach to Executive Compensation” in the Circular.

 

Approval of Amendment to the Restricted Share Unit Plan: Shareholders will be asked to approve an

amendment to the Corporation’s Restricted Share Unit Plan to become the Restricted and Performance Share

Unit Plan, which is more full described under the heading “Matters To Be Acted Upon At Meeting – Approval of

the Restricted and Performance Share Unit Plan” in the Circular.

 

Name Change: Shareholders will be asked to approve an amendment to the Corporation’s articles by

changing the name of the Corporation, which is more fully described under the heading “Matters To Be Acted

Upon At The Meeting – Approval of Name Change to Obsidian Energy Ltd.” in the Circular.

 

Deficit Elimination: Shareholders will be asked to approve the reduction to the Corporation’s share capital for

accounting purposes, which is more fully described under the heading “Matters To Be Acted Upon At The

Meeting – Reduction in Share Capital for Accounting Purposes” in the Circular.

"

[SharperDingaan]

Nice to see ..

 

Notable is that the 6,820 deficit will get crossed against the 8,999 of shareholders capital, emphasizing the 2,275 of very clean net equity that they have. Add in the name change, and we have both a market AND a financial 're-branding', consistent with managements Q1 message of focus on growth.

 

At 2,275; the BV is roughly CAD 4.53 - the odds would seem pretty good on their also being a 2:1 consolidation (does not require approval) when the name changes. Fewer shares also opens floor valuation possibilities around the dividend model.

 

We know there is an 11M sale closing in Q2 (Q1 2017, Note 12), and that there has been a 2nd disposal sale since then. It would also seem that the combined result of both disposals was highly likely to have been a gain on sale, underlining that asset MV is > reserve value; and that their borrow capacity is actually greater than stated.

 

With a new name and a new share count, Obsidian becomes a more direct comparative to RRX;

& the market metrics of RRX transfer to Obsidian.

 

All good.

 

SD

 

 

[longlake95]

SharperD...Gee, I hope your right on Obsidian being re-rated similar to RRX. 2X BV, 7X CF. It's been a long wait. If Ob hits those metrics, dinner at Morton's on me!

[SharperDingaan]

SharperD...Gee, I hope your right on Obsidian being re-rated similar to RRX. 2X BV, 7X CF. It's been a long wait. If Ob hits those metrics, dinner at Morton's on me!

 

Keep a few shares back - because you might well need to deliver!

 

SD

   

[longlake95]

I am on record! I look forward to a nice rare NY!  ;)