PWE - Penn West Petroleum

[Pelagic]

Management seems to be sharp operationally in terms of well results in the Cardium but their vision and capital allocation plan leaves something to be desired. If they're concerned about being below a $1 announcing something like a $10 or $20M buyback would likely correct that, worst case they buy back a few million cheap shares. Not asking for them to go nuts but a little thought toward shareholders would be nice. Good results in the Cardium are doubly frustrating since it seems the market doesn't care but it also shows what that asset is capable of.

[SharperDingaan]

Very good report.

Lot of great run room for Q1 2018 as well - as we’ve additional wells tied in, Ventura continues to contribute, and the $4/bbl netback loss on sold legacy assets is gone. There’s clearly a lot more in the tank, and it is highly likely that current 2018 guidance is severely understated.

 

Nice to see the RS proposal.

It implies that with only 168M shares, the NYSE listing (& costs) will be dropped. It also suggests a new equity issue to create some float (with funds to additional drilling), and a focus on both institutional shareholders and long-term valuation.

 

FFO is ramping up nicely, and it’s becoming hard to see why this wouldn’t be around $8-9/share after the AGM, immediately following 3:1 consolidation. No institution is going to have a problem paying the current $2.60 P2 value/share - when there is this much new volume at very high liquids content coming from the Cardium.

 

SD

 

 

[Cardboard]

"FFO is ramping up nicely, and it’s becoming hard to see why this wouldn’t be around $8-9/share after the AGM, immediately following 3:1 consolidation. No institution is going to have a problem paying the current $2.60 P2 value/share - when there is this much new volume at very high liquids content coming from the Cardium."

 

When are you going to stop posting false expectations such as this?

 

Cardboard

[Joe689]

CONA will go private at about 1/2 of 1P NAV10%.  and 1/3 of 2P NAV10%.

 

What a steal.

[SharperDingaan]

"FFO is ramping up nicely, and it’s becoming hard to see why this wouldn’t be around $8-9/share after the AGM, immediately following 3:1 consolidation. No institution is going to have a problem paying the current $2.60 P2 value/share - when there is this much new volume at very high liquids content coming from the Cardium."

 

When are you going to stop posting false expectations such as this?

 

Cardboard

 

$8-9/consolidated share is only $2.67-$3.00/share pre-consolidated; or 115-140% above the current $1.25. OBE has also historically traded in this range, at the current WTI price – when it was in much worse financial shape. Coupled with the orientation change in the investor base that a RS is likely to produce; this is not an unreasonable price expectation.

 

FFO was 52M Q42017 and was 192M for FY2017. We know recent drilling has more than recovered forecast 2018 depletion, production is both lighter and wetter, and that Cardium is producing at top of class. With 9 months of drilling still to go; most would also expect that average 2018 production, pricing, and netbacks will be quite a bit better than they were over 2017. FFO growth is well founded.

 

The issue here is that a fighting share base could well pull in an unwelcome bid - we get that.

Right now, with takeaway capacity limited, a potential bid from a heavy oil producer is unlikely; however that limitation isn’t going to last forever.

But given OBE’s pedigree, it’s unlikely to occur unless ‘invited’.

 

We’re on the same page,

but these are not unreasonable expectations.

 

SD

 

[Uccmal]

Management seems to be sharp operationally in terms of well results in the Cardium but their vision and capital allocation plan leaves something to be desired. If they're concerned about being below a $1 announcing something like a $10 or $20M buyback would likely correct that, worst case they buy back a few million cheap shares. Not asking for them to go nuts but a little thought toward shareholders would be nice. Good results in the Cardium are doubly frustrating since it seems the market doesn't care but it also shows what that asset is capable of.

 

Management is weak.  This company is like a proving ground to show how useless you can be. The share consolidation should have been done neary a year ago when they changed the name.  At the same time they should have delisted from New York. 

 

That said, the share price has little to do with them.  Nearly all the small to mid sized E&Ps in Canada have been killed right now.  They are suffering from multiple "alleged" storms hitting at once.  Fear of oil prices going back down; fear of Nafta being revoked (which wont affect oil); fear of Us shale taking over the Universe; alleged pipeline issues which aren't that critical for the light oil producers at this point.  You name it, its an unpopular space.  All the companies can do is go about their business, cut costs to the bone, and eventually something positive will happen to shake everything up.  My money is on a further price run up at some point.  Comcurrent with that will be the lowest operating costs they have ever had.  I am talking in general, not about OBE specifically. 

[StevieV]

SD,

 

Speaking for myself, I don't think your price projections are unreasonable, over time and with a sentiment change.  I think what Cardboard objects to is the time-frames and over-statements regarding the certainty,

 

"FFO is ramping up nicely, and it’s becoming hard to see why this wouldn’t be around $8-9/share after the AGM, immediately following 3:1 consolidation. No institution is going to have a problem paying the current $2.60 P2 value/share - when there is this much new volume at very high liquids content coming from the Cardium."

 

Taking the statement above, the AGM is 3-4 months away.  Stock prices in this space can move quickly.  So, I think lots of things are possible.  However your statement implies some expectation of a 100%+ return in the next 3-4 months.  I think it is quite wrong to expect something like that.

 

The institution paying $2.60 is also an overstatement.  At some point, OBE may be taken out at a higher price.  If there were certainty, or even anything close to a certainty, that there would be a suitor for OBE  today who would pay $2.60, OBE wouldn't be trading where it is.

 

I enjoy your posts, but I think that your price comments are a big over-reach.  If that is what Cardboard is saying, I agree with that.

 

SteveV

 

 

[Cardboard]

Exactly what I am saying StevieV.

 

Almost no one in the patch is trading at 2P NAV. CPG for example which is a much better and larger company than OBE and much more likely to attract institutions money is trading at 35% of 2P NAV. And now in two months time, OBE will trade at 2P?

 

In a sense it would mean that the entire Canadian oil patch should be revalued by almost a double upward in 2 months for SD dream to come true. And as CONA and other transactions demonstrate, 2P is rarely if ever paid at least not in the recent past.

 

Cardboard

[doc75]

Most would agree that SD's writing style tends to conflate fact, speculation, metaphor and fantasy.  We posit that it's been that way since the SFK pulp days, but maintain that it's benign in purpose.  Our position is that they should continue to post in whatever manner they see fit.  It's a big field and each horse can choose the hay that suits him.

 

---

 

Just having fun. I find some interesting nuggets in SD's posts, though I've always been bemused by the third-person thing and imagine a great skit with an investment advisor who speaks in riddles.

 

 

[StevieV]

Exactly what I am saying StevieV.

 

Almost no one in the patch is trading at 2P NAV. CPG for example which is a much better and larger company than OBE and much more likely to attract institutions money is trading at 35% of 2P NAV. And now in two months time, OBE will trade at 2P?

 

In a sense it would mean that the entire Canadian oil patch should be revalued by almost a double upward in 2 months for SD dream to come true. And as CONA and other transactions demonstrate, 2P is rarely if ever paid at least not in the recent past.

 

Cardboard

 

FWIW, I like and own CPG.

[doc75]

Question for the regulars on this thread:

 

Approx. what percentage of your portfolio do you currently have allocated to O&G?  Or Canadian O&G in particular?

 

Thanks!

[Joe689]

Overweight.  60%. 

[Uccmal]

Question for the regulars on this thread:

 

Approx. what percentage of your portfolio do you currently have allocated to O&G?  Or Canadian O&G in particular?

 

Thanks!

 

20% : nearly all WCP;

25% ENB and ENF - peripherally O&G

15% Russel Metals: 30 % pipe and steel for O&G

 

This year has been alot of suffering so far. 

[Paarslaars]

Overall +/- 35%, combined with a substantial position in coal, it has been a shitty year.

[Zorrofan]

"This is a sharp operational team."

 

I am not so impressed by management.  They need to drill more producing wells in the Cardium and curtail the dumb hedging program.  The company produces too few barrels.  At their size, they need to grow faster, and can.  Once they get up to 50,000 BOE or so, they can work on other things.

 

The hedging is fighting the last battle.  The prices are too low, and the backwardation too steep for their program.

 

They land and wells are there.  They need a shift in strategy.

 

"We plan to add three wells to our 2018 Willesden Green Cardium program. We expect one of those wells to come on stream in the second quarter, and the next two wells to come on stream early in the fourth quarter. We will fund these wells by reducing our Alberta Viking, Deep Basin and standalone waterflood capital outlays by a total of $9 million."

 

At least its a start......

 

cheers

Zorro

[Pelagic]

"This is a sharp operational team."

 

I am not so impressed by management.  They need to drill more producing wells in the Cardium and curtail the dumb hedging program.  The company produces too few barrels.  At their size, they need to grow faster, and can.  Once they get up to 50,000 BOE or so, they can work on other things.

 

The hedging is fighting the last battle.  The prices are too low, and the backwardation too steep for their program.

 

They land and wells are there.  They need a shift in strategy.

 

"We plan to add three wells to our 2018 Willesden Green Cardium program. We expect one of those wells to come on stream in the second quarter, and the next two wells to come on stream early in the fourth quarter. We will fund these wells by reducing our Alberta Viking, Deep Basin and standalone waterflood capital outlays by a total of $9 million."

 

At least its a start......

 

cheers

Zorro

 

I think this is my biggest gripe with management's current plan, or lack thereof. In the conference call they say the following about their Willesden Green Cardium assets:

 

One of our more exciting updates has been the results of our Willesden Green Cardium program. We’ve long known the potential of this asset and injects capital with results that stack up against any peer.

 

What is most talked about is our results in the Willesden Green Cardium and rightly so, the numbers the team delivered stack up against any of our peers in the area. We’ve been active in Willlesden Green for several years and have an enviable land position.

 

how many locations you think you have? How many net locations you think you have remaining on that?

Tony Berthelet

Yes, we’ve kind of given direction to 50 to 75 locations in that

 

So, they spent a good bit of the conference call talking about their success in the Willesden Green's bioturbated zone yet over the rest of the year they only plan on drilling 3 more wells? One coming online soon and then two more in the beginning of Q4, nothing in Q3. Perhaps they have a good reason as to why and they see spending capital on their other locations as offering a better return. But, that is seemingly at odds with them hyping their WG success throughout the conference call and the actual production results success they've had. $9M is something but if they're going to spend so much time telling us how great the asset is, why not allocate more?

 

[SharperDingaan]

We hear you and will dial it back a bit.

We’ll also use the opportunity to clarify some points ..

 

The ‘we’ thing.

I am investing family money, and part of it is the ongoing ‘investment’ training of all family members on both sides of the Atlantic (Canada, UK). A decision to invest/remain in XYZ stock is a joint one, it gets jointly reviewed every six months, and the ‘we’ is a device to remind us all of that. We find it useful to be counter to NA culture, and all family members routinely review the CoBF board.

 

The ‘time frame’ thing.

Our view is typically 6 months from the date we post - so that events have time to happen (a March post on year-end activity, is looking at the potential September environment). In o/g that is critical, as it gets one past the distortion of the depression/mania of todays events. To a WCSB producer todays environment looks utterly sh1te, forever, and valuations reflect it. But the reality is that much of this is simply group depression associated with living in Calgary/Edmonton/Houston, and routinely seeing 75% of friends who have lost their job, also quitting the industry for good. If you live someplace else and look ‘in’ -  it’s a very different view. Again, deliberately counter to NA culture.

 

O/G weighting.

We’re a little under 65% with the main holdings in OBE, WCP, PD; however, our entire PD position is house money, and essentially a zero-cost unlimited life option. We have a similar exposure with ADV. Our long-term view is that ultimately these will be all be punch-card investments.

 

WCSB o/g is a great industry, and well known for its innovation. We recognize that it’s going through a very tough time, pipeline constraints are now starting to bite hard, and that some of todays firms may not make it. Fraying nerves are part of the environment, but the clouds will eventually pass.

 

SD

 

[Joe689]

"So, they spent a good bit of the conference call talking about their success in the Willesden Green's bioturbated zone yet over the rest of the year they only plan on drilling 3 more wells? One coming online soon and then two more in the beginning of Q4, nothing in Q3. Perhaps they have a good reason as to why and they see spending capital on their other locations as offering a better return. But, that is seemingly at odds with them hyping their WG success throughout the conference call and the actual production results success they've had. $9M is something but if they're going to spend so much time telling us how great the asset is, why not allocate more?"

 

They simply do not have the money.  They will not tap debt.    Organic growth only.  And it is important to put some money toward the other assets.  Especially, if you are trying to sell them.  You do not want to show decline.    This is just going to be a slow steady story unless someone pays up for us.  Otherwise, it does seem like the company has any intentions on getting crafty, especially after not blinking to FF.    Question is whether or not FF can force a move. 

 

Keep in mind Q2 is break-up period in Canada.  They cant get a well online in Q3.

[Joe689]

We are trying to draw a bid.  The company's plan is so under motivated that it almost seems like they do not want to increase price or attract new investors.  They had levers to pull to increase PPS and chose not to.  On top of that, our largest holders have not increased their holdings since January.    Seems like everyone involved is complacent in letting us get cheaper and cheaper until a bid comes in.

[StevieV]

  Seems like everyone involved is complacent in letting us get cheaper and cheaper until a bid comes in.

 

That would be quite the terrible strategy.

 

Unfortunately, I think I have a while more to wait on this.  Two things:

 

(1) Sentiment needs to change for the Canadian oil companies.  As noted on this thread, other Canadian oil companies remain in the dumps.

 

(2)  The company needs to adopt a more aggressive stance.  More Cardium drilling, less hedging.

 

Both of these could be slow.

[Cardboard]

https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aOBE-2583711&symbol=OBE&region=C

 

LOL!

 

I found quite funny that they don't like the reverse split. According to SD, FrontFour was all for it  ::)

 

On that one the solution is easy: status quo, close shop at the NYSE, cut your costs (listing fees, etc.).

 

The FrontFour plan is a disaster. They basically call for the selling of Viking and Peace River assets at the worst possible time. There are already lots of assets for sale, few takers and terrible valuation. Would not be a bad idea to dispose of their non-core gassy legacy assets but, again the price for it will be next to nothing. Maybe decommissioning liabilities like recently?

 

Then plow the proceeds to grow the Cardium with no regard to sustainability or decline rate. Their goal is clearly to get a short term pop in the stock by focusing the company on the Cardium, generate some growth excitement, then try to sell a focused company in one asset.

 

When daddy was there, he tried to get good value for the assets. Not fire sales. The son should be told to go take a hike and I suspect that is exactly what will happen and won't be the first time in the WCSB.

 

Cardboard

[SharperDingaan]

https://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aOBE-2583711&symbol=OBE&region=C

 

LOL!

 

I found quite funny that they don't like the reverse split. According to SD, FrontFour was all for it  ::)

 

On that one the solution is easy: status quo, close shop at the NYSE, cut your costs (listing fees, etc.).

 

The FrontFour plan is a disaster. They basically call for the selling of Viking and Peace River assets at the worst possible time. There are already lots of assets for sale, few takers and terrible valuation. Would not be a bad idea to dispose of their non-core gassy legacy assets but, again the price for it will be next to nothing. Maybe decommissioning liabilities like recently?

 

Then plow the proceeds to grow the Cardium with no regard to sustainability or decline rate. Their goal is clearly to get a short term pop in the stock by focusing the company on the Cardium, generate some growth excitement, then try to sell a focused company in one asset.

 

When daddy was there, he tried to get good value for the assets. Not fire sales. The son should be told to go take a hike and I suspect that is exactly what will happen and won't be the first time in the WCSB.

 

Cardboard

 

We suggested that a 3:1 RS favoured a longer term orientated institutional versus shorter term orientated retail shareholder base; FF is just one of many institutions, & has a different agenda. We also suggested that the NYSE listing would go, and implied that the consolidated share count would require an equity issue for float purposes.

 

FF clearly wants out, and is willing to incur the costs of a proxy fight. That's their priviledge.

Conversely, nothing prevents OBE challenging the fiduciary responsibility of making fund owners bear the cost of what could be an expensive bill; all's fair in love and war. Ultimately the fund either takes the risk of a bigger loss later, or 'junior' makes them whole from this point forward - and pays to play.

 

Show the majority of votes that 'your' plan offers the highest value, and you will win.

That's all that we can ask for.

 

SD

 

   

[Cardboard]

"We also suggested that the NYSE listing would go, and implied that the consolidated share count would require an equity issue for float purposes."

 

So you consolidate the stock, then issue shares to improve liquidity? At these levels? And plug the proceeds from that dilution into the Cardium?

 

Like I mentioned multiple times, some on this thread have failed to look at what has been going on in the Canadian energy space. It is not only OBE that has come down (crashed?) and underperformed but, pretty much all stocks.

 

The company has turned around mainly because of a very smart sale of their Saskatchewan asset to Teine in 2016. Now is not the time to entertain desperate plans but, to hunker down, cut costs and be patient.

 

Cardboard

[Joe689]

Now is not the time to entertain desperate plans but, to hunker down, cut costs and be patient.

 

The company may think otherwise.  "status quo is not an option and have been pursuing attractive commercial opportunities to reward investors"

[constala]

" we (THE BOARD) are AGGRESSIVELY looking at all options to increase shareholder value"

 

https://www.prnewswire.com/news-releases/obsidian-energy-frontfour-is-risking-the-companys-progress-677475463.html

 

God I hate this public news release nonsense, it could mean everything and nothing at the same time.