PWE - Penn West Petroleum

[SharperDingaan]

"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

 

Near term additional drilling gets funded either from asset sales, or an equity sale. A retractable convertible pref sold via a bought deal would let them keep the assets, & evidence institutional confidence. The buyer gets an interest paying option, and it does not neccessarily dilute.

 

Agreed that all else equal, slow and steady should get them there.

IF they can stay independent .. which is somewhat questionable at the moment.

 

SD

 

[Joe689]

This is just ugly.  I am failing to see how to move forward from here independent unless current MGMT get the votes.  This is last call for current MGMT to pull a rabbit out of its hat.   

[Joe689]

Annual and Special Meeting of Shareholders:

Date of meeting:

May 11, 2018

Record date for notice:

April 4, 2018

Record date for voting:

April 4, 2018

 

Really late notice here.  Only a couple trading days left.  Strategy?

[SharperDingaan]

They bought advice and are listening to it.

Good on them.

 

SD

 

[constala]

This move to rush the AGM by the Board shows weakness and deep unsecurity.

"Un vrai coup bas "! As we say in France; this is below the belt.

No time for Front4 to explain to the minority shareholders their strategy. And little time to put forward the proxy items and proposals, let alone launch a press campaign to raise awareness.

Oh well, if the AGM fails an EGM will do.

 

[Zorrofan]

"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

 

Near term additional drilling gets funded either from asset sales, or an equity sale. A retractable convertible pref sold via a bought deal would let them keep the assets, & evidence institutional confidence. The buyer gets an interest paying option, and it does not neccessarily dilute.

 

Agreed that all else equal, slow and steady should get them there.

IF they can stay independent .. which is somewhat questionable at the moment.

 

SD

 

What about joint ventures on some of the acreage they can't develop themselves currently - allow someone else to bear the capex expense in exchange for earning an interest in the wells?

[Joe689]

FF has been in this business for a long time.  I think they prepare for scenarios like this.  There is a good likelihood that they have already rallied their troops (votes).

 

Volume has been so low lately, management probably figured that giving them two days to accumulate more shares will be a tough to do.  Basically forcing FF's hand if they are going to step up their game!

 

This company is soooo vulnerable right now.

[Joe689]

In regards to JV, it may be too little too late.  They are in the 9th inning and are down 4 runs.    They need to pull out a high $$$ move to prove themselves.  I think even selling PR or Viking for 100-200 M will be too little too late considering FF proposed it.

 

These were all things they could have done earlier and they wouldn't have got down by so many runs.

 

 

[zippy1]

https://finance.yahoo.com/news/obsidian-energy-announces-strategic-actions-103000693.html

Obsidian Energy Announces Strategic Actions to Unlock Shareholder Value

-- Launches Sale Process for Alberta Viking Assets; Ongoing Discussions with CIC Regarding Disposition of PROP; Plans to Use Any Sale Proceeds to Fund Cardium Growth, Reduce Debt and Buy Back Shares --

CALGARY , April 2, 2018 /CNW/ - OBSIDIAN ENERGY LTD. (TSX – OBE, NYSE – OBE.BC) ("Obsidian Energy", the "Company", "we", "us" or "our") has retained RBC Capital Markets to explore a potential sale of the Company's Alberta Viking assets and is engaged in ongoing discussions with China Investment Corporation ("CIC") regarding a disposition of the Company's share of jointly owned Peace River assets. Obsidian Energy intends to use the proceeds of any such asset sales to accelerate growth in the Company's prime Cardium assets, pay down debt and return capital to shareholders through the implementation of a Normal Course Issuer Bid.

 

The Company is also announcing a deferral of the proposed share consolidation and changes to Obsidian Energy's Director compensation to further align director pay with shareholders.

 

"Today's announcement is the natural next step in our ongoing strategy to unlock shareholder value and establish Obsidian Energy as a growth company focused on optimizing our industry-leading position in the Cardium," said David French , President and CEO of Obsidian Energy. "In addition to exploring the sale of our Alberta Viking and Peace River assets, we are actively reviewing industry consolidation opportunities with significant synergies and a focus on creating a company with best-in-class operating performance, financial discipline and industry-leading growth prospects."

 

Over the past three years, Obsidian Energy has divested approximately $2.3 billion of assets, significantly improved the Company's financial and operating performance and eliminated a number of the legacy challenges that have constrained the Company's relative performance.

 

"Obsidian Energy's Board and management are working with a sense of purpose – and opportunity – to create value for all shareholders," said Jay Thornton , Board Chair. "This process started in Q3 last year and accelerated in October when the Board selected RBC Capital Markets as our lead financial advisor to work alongside management to action any and all value creating transactions. We believe in the Company's future and are excited about its potential."

 

With production of approximately 2,500 boe/d, the Alberta Viking asset offers a mix of light-oil and gas with high-netback shorter cycle wells, an industry-leading land position and extensive owned infrastructure over the entire Esther area. The Peace River Oil Partnership ("PROP") is a joint venture between Obsidian Energy and CIC, with net production to Obsidian Energy of approximately 5,000 boe/d and a large position in a crude oil resource highly amenable to conventional cold-flow production. PROP has de-risked its large resource base and has many years of inventory with attractive economics.

 

The Company expects to conclude a sale of the Alberta Viking assets by the end of the second quarter of 2018. Discussions with CIC are expected to continue into the fall before a formal process is started.

 

Planned Use of Proceeds

The Board will determine the right balance of accelerated Cardium growth, debt repayment and share buybacks based on changes in the Company's borrowing base as a result of any production being sold, and Obsidian Energy's share price at the time of any such sale. The Company intends to apply for a Notice of Intention to Make a Normal Course Issuer Bid (the "Bid") with the Toronto Stock Exchange (the "TSX") upon closing of the potential transaction. The Bid will be subject to the approval of the TSX and the Company's lenders. Obsidian Energy intends to repurchase shares on both the TSX and New York Stock Exchange (the "NYSE") and/or alternative Canadian trading systems.

 

Proposed Share Consolidation to Cure NYSE Listing Requirements to Be Deferred, or Otherwise Cancelled

Obsidian Energy previously announced its intention to propose a consolidation of the Company's outstanding common shares at the upcoming Annual and Special Meeting, subject to Board discretion. The Board and management have listened to investor feedback encouraging the Board not to proceed with the share consolidation at this time. Moreover, the Board and management strongly believe that the continued execution of the Company's strategy will bring Obsidian Energy into compliance with the NYSE's listing requirements within the applicable time frame. The Board will, however, continue to seek the discretion to consolidate the common shares, on the same ratio as previously stated, but only in the event that the Company is not in compliance with the minimum share price listing standard on the latest date necessary to potentially avoid the delisting from the NYSE.

 

Obsidian Energy Directors Elect to Receive All Fees in Equity versus Cash

As an expression of confidence in the Company's future and to even more firmly align the interests of Directors with the interests of Obsidian Energy shareholders, each member of the Board of Directors has elected to take all of his or her fees in the form of equity (e.g. Deferred Share Units) going forward.

[Joe689]

So pretty much everything is for sale?  Viking, PR for sure.  And looking for a potential merger? 

 

And viking to "conclude" in Q2.  Does that mean, we already have a buyer?  Or we still now accepting bids?  Sounds like the latter.

 

Be interesting to hear what FF has to say.

 

Anyways, MGMT seems to get my investment thesis.  "sum of pieces". 

[SharperDingaan]

Lots of goodies in here - we feel like a kid on christmas day!

 

Overall interpretation:

 

1) The Viking and PR asset sales will create large receivables, against which they have received bank financing (implied)

 

2) Post RS, OBE was thinking 168M o/s. The implication is that a buy-back of around 336M shares (approx CAD 500M) financed against asset sales & the IV gain on shares bought < BV - would get them to the same place. Our own thoughts are that it will actually be less than this, and that the NYSE listing will go once it's done. "The Company intends to apply for a Notice of Intention to Make a Normal Course Issuer Bid (the "Bid") with the Toronto Stock Exchange (the "TSX")"

 

3) We would expect that discussions are already underway with potential targets, they are probably going to be successful, but they (& everybody else) had to be informed as to surrounding circumstance. No different to buying a new house, conditional upon selling the old house first. Most would ASSUME the targets are going to add more than the 7500 boe/d being sold, & cost less to develop/boe than what is being sold. We would also expect that of the 12,000 boe/d in Q1 hedges rolling off, they will roll over no more than 4,500 boe/d (12,000 - 7,500). "we are actively reviewing industry consolidation opportunities with significant synergies and a focus on creating a company with best-in-class operating performance"

 

4) Early days yet but Cardium may still end up being too big for them to develop on their own - especially if they also have an elevated debt level. We rather suspect they have a partner and a means of reducing the debt once the dust settles.

 

All in all a good day, and we wish them luck.

 

SD

 

 

 

 

[jrallen81]

what was the plan to "consolidate" the shares - reverse split?

[Joe689]

Yes, RS was the original plan.  Amazing to see MGMT flip flop to such a large degree.  Signs of panic to me.  This story just keeps getting more and more bizarre.  We will hear from FF soon and can't wait to hear their comments.  I was always behind MGMT but they seem like reactive amateurs.  I expected a bigger rabbit to be pulled out the hat and not just playing to the exact tune of FF.    Is it all AGM strategy.  Play to FF tune, set the meeting and record date very close, and try to pull off the votes. 

 

Maybe MGMT has been fighting off a bid and is acting very erratically.  The "natural next step in our ongoing strategy" is quite a choice of words considering all other communications of plan having nothing to do with this.  "Natural next step" or doing a 180?

 

And still have trouble putting meaning to "conclude" viking deal in Q2.  Best guess, is that we are in the later stages of bids.  but why not give guidance on deal metrics and where the money will be sent.  If it was the "natural next step" wouldn't you have a good idea of a more detailed plan with the proceeds?

 

Still find things very ODD.  I used to think that MGMT had a master plan but unsure anymore.  Can't put my finger on what is really going on with this Alberta company

[SharperDingaan]

Our own guess is that in the boards dd process, managements development plan failed to 'come out on top' re the alternatives; hence we're now executing the alternatives (not neccessarily the FF suggestions). Nothing wrong in that, and if the process pulls in a competing bid - so much the better. As shareholders we end up with the highest and best price, all we can ask for.

 

The facts are that OBE itself is now an EXTREMELY attractive take-out target. 30,000+boe/d of proven light oil reserves that can be bought for cents on the dollar, large numbers of great drilling targets, Cardium acerage alone that is a company maker, & much of the transaction would be self-financing (Viking & PR sales). Any kind of reasonable cash and paper offer would very likely take the show.

 

The Viking language suggests they have a MOU; and expect to announce a sale in Q2, that would most probably settle sometime in 2H2018. Our guess is that much of the search for the buyers was done by FF, and that existence of the Viking and PR negotiations HAD TO BE ANNOUNCED - as they are pertinent to the coming proxy vote. If it occurrs.

 

While our preference is that they remain independent - ultimately it will be market determined.

Again, all that we can really ask for.

 

SD

 

 

 

 

 

[roundball100]

 

[...] The facts are that OBE itself is now an EXTREMELY attractive take-out target [...]

 

 

If this is so obvious, why aren't people buying up the shares hand-over-fist ... very hard to understand the disconnect between such optimism and market pricing.  And for such a long period of time. 

[SharperDingaan]

 

[...] The facts are that OBE itself is now an EXTREMELY attractive take-out target [...]

 

 

If this is so obvious, why aren't people buying up the shares hand-over-fist ... very hard to understand the disconnect between such optimism and market pricing.  And for such a long period of time.

 

The usual WCSB suspects don't have the cash, & could only do a paper transaction; with the Viking & PR announcements that's much less of an issue now. Mid sized Cdn o/g producers have also been perceived as utter sh1te, ever since new pipeline capacity got taken away. The NA o/g 'story' is also only about the Permian - & not the WCSB. This is the leper colony.

 

SD

 

[Spekulatius]

So pretty much everything is for sale?  Viking, PR for sure.  And looking for a potential merger? 

 

And viking to "conclude" in Q2.  Does that mean, we already have a buyer?  Or we still now accepting bids?  Sounds like the latter.

 

Be interesting to hear what FF has to say.

 

Anyways, MGMT seems to get my investment thesis.  "sum of pieces".

 

If the value is there, you dont need a takeover thesis to make the stock work. If you need a takeover thesis to make the stock work, it’s  not a value stock. Just my opinion.

[Pelagic]

New letter out from FrontFour

 

https://ca.finance.yahoo.com/news/frontfour-formally-provides-advance-notice-221600923.html

 

The four current directors on Obsidian's board that FrontFour has "targeted" have a rather anemic total equity stake. I don't see a compelling reason to vote for them as opposed to FF's chosen directors. OBE has conceded everything FF asked for in terms of strategy, might as well get some board members in place with experience in the industry.

[Joe689]

At this point, things are so broken.  Shareholders broken, plans broken, egos broken, etc....  Going forward things do not look much prettier.  MGMT probably has already started to turn on each other and are likely very divided.  Furthermore if FF wins, they will gut MGMT. No matter who wins, shareholders will remain divided and sour.    Who wants to invest in this mess?

 

This company and its shareholders have gone through too much pain.  The right thing to do is end the pain.  Long term plans should go out the window.  Auction the entire company, or separate assets.  I do not care who does it.  Current MGMT or FF. 

[siddharth18]

At this point, things are so broken.  Shareholders broken, plans broken, egos broken, etc....  Going forward things do not look much prettier.  MGMT probably has already started to turn on each other and are likely very divided.  Furthermore if FF wins, they will gut MGMT. No matter who wins, shareholders will remain divided and sour.    Who wants to invest in this mess?

 

This company and its shareholders have gone through too much pain.  The right thing to do is end the pain.  Long term plans should go out the window.  Auction the entire company, or separate assets.  I do not care who does it.  Current MGMT or FF. 

 

No opinion on PWE but from a pure sentimental perspective, it reminded me of Burry's comment about when a bottom is formed. In 2003, he wrote (for housing) "after much pain both despair and disgust will settle in, and a bottom would begin to form."

[Liberty]

The idea is to find good things that are temporarily broken. Many other broken things just stay broken...

[Pelagic]

Two near term improvements for OBE of late. First, share price has been above $1 for a few days now so hopefully the delisting concerns that initially prompted management to consider a reverse split are behind us - for good perhaps  :-\

 

Second, WCS differentials have improved so cash flow from the PR property should be better for Q2 and in turn make it worth more in a sale.

 

I kind of think about value investing as something like 30% analysis, 70% patience. OBE has a valuable asset in the Cardium with as much land as they'll likely ever be able to drill for the next decade. What they lack is cash and a plan to develop it in a way that maximizes value for shareholders. Selling off assets in a rising oil market, or at least a market where equity valuations haven't caught up to the price of oil, isn't ideal. However, if the company can put the proceeds to work by significantly increasing their light oil production then it should work out in the end and they can remain independent. Splitting up the pieces of the company and selling the carcass seems like a missed opportunity to develop their core asset when they'll have the cash to do so.

 

 

[Joe689]

Unflattering take out of Spartan (SPE) by VET this morning for 1.4 billion.  Very odd to me that mgmt would accept such a low premium.    Market seems skeptical as well.  Will it not pass vote?  Hoping for another offer?  VET down almost 3% today and deal is for .1476 shares which should be 6.34 SPE PPS.  Smells bad.

 

This should at least set a floor for OBE in my opinion.  Our enterprise value is around 1B at this point.  Only thing Spartan has on us is the oil ratio & ARO? (having trouble finding it) but we have higher production, lower decline, and more acreage. 

 

 

[Joe689]

Anyone care to guess on what we might get for the Viking?  Sale should "conclude" in Q2.

[SharperDingaan]

Most would expect the metrics to be better than they are at SPE. Viking also has the 'now in-service' pipeline with an unrestrained capacity of 12,500 boed/d (of light crude), that isn't subject to the full diffeential. A very valuable strategic asset in the current climate.

 

Most would also recognize that conclude in Q2 doesn't mean settle in Q2. Our own thoughts are that the sale date will be driven by the outcomes of the upcoming vote. The more time they have to fill that line with their own production, the more they will get for Viking overall. Everybody wins.

 

SD