PWE - Penn West Petroleum

[doc75]

FWIW, very large insider purchase yesterday (US exchange):

 

https://insidertracking.com/node/7?menu_tickersearch=PWT*CA%20||%20Penn%20West%20Petroleum

[Uccmal]

FWIW, very large insider purchase yesterday (US exchange):

 

https://insidertracking.com/node/7?menu_tickersearch=PWT*CA%20||%20Penn%20West%20Petroleum

 

John Brydson, Director: Listed as a private investor (I guess he no longer holds an outside job):

150,000 shares yesterday - Total holdings ~350,000 shares. 

[longlake95]

I too - have been shocked at the magnitude of the slide in oils. I keep thinking we've hit bottom! I added today a 3.74. I think it's some reflexivity at work. I also own YPF and it's hardly moved since the summer, I thought YPF would get pounded considering their oil is in an emerging market with an unpredictable government.

 

Nice to see more insider buying.

 

LL

[Libs]

file:///C:/Users/dvanov/Downloads/pennwest2014_3rdqtrresults%20(2).pdf

 

I'm trying to figure out the impact of oil staying down here, found this. P.17.

 

At $86 oil, they predicted ~$900MM funds flow in 2015.

 

They say every $1 drop in oil costs $20MM in funds flow.

 

Let's say 2015 averages $70 oil. That reduces FF by $320MM. Now they have ~$600MM.

 

PWE is currently planning:

~ $800MM in cap ex costs to maintain reserves

~200MM dividends

+ $225 MM in debt payable in 2015.

 

Total: $1.2B

 

Something has to give.....am I missing something here?

 

 

 

 

[doc75]

Something has to give.....am I missing something here?

 

Nope.  I think you and the market are on the same page...

[jawn619]

file:///C:/Users/dvanov/Downloads/pennwest2014_3rdqtrresults%20(2).pdf

 

I'm trying to figure out the impact of oil staying down here, found this. P.17.

 

At $86 oil, they predicted ~$900MM funds flow in 2015.

 

They say every $1 drop in oil costs $20MM in funds flow.

 

Let's say 2015 averages $70 oil. That reduces FF by $320MM. Now they have ~$600MM.

 

PWE is currently planning:

~ $800MM in cap ex costs to maintain reserves

~200MM dividends

+ $225 MM in debt payable in 2015.

 

Total: $1.2B

 

Something has to give.....am I missing something here?

 

Makes a lot of sense. I don't see a high MOS even from here. A lot of people are saying that it's getting really irrational but those assumptions don't seem overly pessimistic. Can anyone make a case for this that doesn't require oil at $90+?

[Andy Dufresne]

Most likely the dividend will be cancelled and the company will reduce its drilling program; however, they still have assets to dispose of that *may* bridge some of the gap

[jmp8822]

file:///C:/Users/dvanov/Downloads/pennwest2014_3rdqtrresults%20(2).pdf

 

I'm trying to figure out the impact of oil staying down here, found this. P.17.

 

At $86 oil, they predicted ~$900MM funds flow in 2015.

 

They say every $1 drop in oil costs $20MM in funds flow.

 

Let's say 2015 averages $70 oil. That reduces FF by $320MM. Now they have ~$600MM.

 

PWE is currently planning:

~ $800MM in cap ex costs to maintain reserves

~200MM dividends

+ $225 MM in debt payable in 2015.

 

Total: $1.2B

 

Something has to give.....am I missing something here?

 

Makes a lot of sense. I don't see a high MOS even from here. A lot of people are saying that it's getting really irrational but those assumptions don't seem overly pessimistic. Can anyone make a case for this that doesn't require oil at $90+?

 

This makes sense today. But what will oil prices be in one or two years? $80, $90? I have no idea. I would try to think of it from a probabilistic standpoint.  I like the leverage this stock provides from a potential return standpoint. Let's say the stock is fairly valued at today's oil prices roughly, you can make what appears to be a good risk adjusted bet. Buy $2 strike 2017 calls for $1.2 and perhaps make 5x. Or you are wrong and you lose 1x. Note that option is still well in the money today.

[CanadianMunger]

From the local paper today:

 

Penn West CEO stays positive as stock, oil prices slide

 

http://calgaryherald.com/business/energy/yedlin-penn-west-ceo-looks-forward

 

It all sounds good, but at least one sell-side analyst criticized Penn West for not cutting its dividend as part of its repositioning exercise.

 

And while the reasoning makes sense from the often-said perspective that dividends impose capital discipline, in certain circumstances it makes sense to bite the bullet.

 

But Roberts isn’t having any of it, at least, not now.

 

“In my view, you have to pay people to stay in the story with you as you go through this,” he said.

 

Hmm..

 

-CM

[Guest wellmont]

From the local paper today:

 

Penn West CEO stays positive as stock, oil prices slide

 

http://calgaryherald.com/business/energy/yedlin-penn-west-ceo-looks-forward

 

It all sounds good, but at least one sell-side analyst criticized Penn West for not cutting its dividend as part of its repositioning exercise.

 

And while the reasoning makes sense from the often-said perspective that dividends impose capital discipline, in certain circumstances it makes sense to bite the bullet.

 

But Roberts isn’t having any of it, at least, not now.

 

“In my view, you have to pay people to stay in the story with you as you go through this,” he said.

 

Hmm..

 

-CM

 

another CEO putting his reputation on the line based on the price of something he can't control. this guy is making a huge bet that oil prices are going back up.

[doc75]

The official Penn West stance is that it is the longevity of a low-price environment that would cause them to alter their capital plans, as opposed to the particular trading price of the day.  I presume they'll lower the dividend if oil prices stay low even for a couple quarters.  That would be consistent with what they have been saying.

 

That said, I really don't understand why Roberts (who is a proxy for the board) has so emphatically supported the dividend.  The comment about keeping people in the "story" through tough times doesn't inspire confidence.

 

 

 

[alertmeipp]

The official Penn West stance is that it is the longevity of a low-price environment that would cause them to alter their capital plans, as opposed to the particular trading price of the day.  I presume they'll lower the dividend if oil prices stay low even for a couple quarters.  That would be consistent with what they have been saying.

 

That said, I really don't understand why Roberts (who is a proxy for the board) has so emphatically supported the dividend.  The comment about keeping people in the "story" through tough times doesn't inspire confidence.

 

I don't think it matters much. COS cuts, its get hammered, PWT keeps, its get hammered. People just want to get out.

 

 

[adesigar]

PWE is really interesting at this price. Do any of you know of other such Oil and Gas companies which have dropped as much as PWE? I was thinking of buying a basket of them. Thanks in advance.

[undervalued]

XCO, SD. I am thinking of doing the same. I have already own SD and XCO.

[ERICOPOLY]

Prepare to lose a lot more soon.  I finally got sucked into this one.  I read the thread yesterday for the first time -- so glad to have ignored it.  Thanks to all who contributed to this thread.  And no, I have no experience at all in this sector.  Literally my first ever purchase in the oil/gas space.

[thepupil]

Prepare to lose a lot more soon.  I finally got sucked into this one.  I read the thread yesterday for the first time -- so glad to have ignored it.  Thanks to all who contributed to this thread.  And no, I have no experience at all in this sector.  Literally my first ever purchase in the oil/gas space.

 

now for the real death knell; I bought yesterday.

[alertmeipp]

How come u always time it so good.

At least much better than many old owners.

[turar]

Prepare to lose a lot more soon.  I finally got sucked into this one.  I read the thread yesterday for the first time -- so glad to have ignored it.  Thanks to all who contributed to this thread.  And no, I have no experience at all in this sector.  Literally my first ever purchase in the oil/gas space.

I guess it's time to load up.  ;D

[plato1976]

I bought at 4, presumably could laugh at guys who bought at 8, but now being laughed at by ppl bought at 2, however, I suspect these guys will be laughed at by guys buying this at 1...

 

How come u always time it so good.

At least much better than many old owners.

[ERICOPOLY]

I also bought my first SD, XOM, LUKOY, OGZPY.  All today.  Something I bought will get slaughtered no doubt -- probably not XOM though.  60% of the money went into PWE, 20% into XOM, the other 3 split evenly.

[thepupil]

so, the funny thing to me about Penn West is the pricing on the bonds. All show up well above par on bloomberg and by no means look "distressed". Then you look at the stock and it's like "golly gee willikers batman this thang is going bankrupt". So someone is wrong; the bonds are a short or the stock is a buy. Bonds of stocks trading at 30% of tangible book don't trade above par, even if there is certainty they are money good, the kind of uncertainty that accompanies a stock like Penn West should pour over into other parts of the cap structure.

 

I asked around about the bonds  and they weren't on any US dealers runs; I assume they are traded by canadian banks if/when they trade at all. Almost all of the issues are 144A but also really small issuances (a weird combo) and very few had a list of holders on bloomberg to see who owned them. So no dice on the bonds (i would ask the more canadian and institutional here to look into this). If anyone can help me out with respect to the arcane details of canadian capital structure pricing and why this mismatch (which would not exist here in the US of A) exists, I'd be most appreciative. Go try to short those bonds at $120!

 

When you move to the high yield US oil patch, you find real distress, things like Bakken producer emerald oil, whose converts are in the 50's, Paragon Offshore with it's bonds in the 50s that it issued 6 months ago, Sandridge has bonds in the 60's, XCO in the 70s, etc.

 

So in my opinion there is a disconnect. The stocks that are down like crazy in the US all have bonds that are pricing in some pain. Penn West is down like crazy, but its bonds are either not pricing or I don't see them pricing (they don't trade or bloomberg has bad data) or are not pricing in any pain.

 

And to my untrained and admittedly ignorant of the ways of oil and gas self it doesn't really look all that distressed. Penn West has $7.7B of tangible assets and a $4B EV with its maturities well termed out and plenty of growth capex and dividends to cut to avoid an all out fire sale in order to delever. the dividend alone would cover their interest costs, so just cut that bitch to zero and use the saved cash flow to service the debt, and maybe stop trying to grow production by 40% over 5 years.

 

Anyways that's my ignorant Penn West thesis : cut dividend, lower capex, sell some assets at "not quite firesale", balance sheet problem solved then wait for turn in cycle.

[BG2008]

Are any of those debt/bond traded on the exchange allowing people to buy via normal brokers?  Does anyone have a list of exchange traded debt/bond? 

 

so, the funny thing to me about Penn West is the pricing on the bonds. All show up well above par on bloomberg and by no means look "distressed". Then you look at the stock and it's like "golly gee willikers batman this thang is going bankrupt". So someone is wrong; the bonds are a short or the stock is a buy. Bonds of stocks trading at 30% of tangible book don't trade above par, even if there is certainty they are money good, the kind of uncertainty that accompanies a stock like Penn West should pour over into other parts of the cap structure.

 

I asked around about the bonds  and they weren't on any US dealers runs; I assume they are traded by canadian banks if/when they trade at all. Almost all of the issues are 144A but also really small issuances (a weird combo) and very few had a list of holders on bloomberg to see who owned them. So no dice on the bonds (i would ask the more canadian and institutional here to look into this). If anyone can help me out with respect to the arcane details of canadian capital structure pricing and why this mismatch (which would not exist here in the US of A) exists, I'd be most appreciative. Go try to short those bonds at $120!

 

When you move to the high yield US oil patch, you find real distress, things like Bakken producer emerald oil, whose converts are in the 50's, Paragon Offshore with it's bonds in the 50s that it issued 6 months ago, Sandridge has bonds in the 60's, XCO in the 70s, etc.

 

So in my opinion there is a disconnect. The stocks that are down like crazy in the US all have bonds that are pricing in some pain. Penn West is down like crazy, but its bonds are either not pricing or I don't see them pricing (they don't trade or bloomberg has bad data) or are not pricing in any pain.

 

And to my untrained and admittedly ignorant of the ways of oil and gas self it doesn't really look all that distressed. Penn West has $7.7B of tangible assets and a $4B EV with its maturities well termed out and plenty of growth capex and dividends to cut to avoid an all out fire sale in order to delever. the dividend alone would cover their interest costs, so just cut that bitch to zero and use the saved cash flow to service the debt, and maybe stop trying to grow production by 40% over 5 years.

 

Anyways that's my ignorant Penn West thesis : cut dividend, lower capex, sell some assets at "not quite firesale", balance sheet problem solved then wait for turn in cycle.

[alertmeipp]

I bought at 4, presumably could laugh at guys who bought at 8, but now being laughed at by ppl bought at 2, however, I suspect these guys will be laughed at by guys buying this at 1...

 

How come u always time it so good.

At least much better than many old owners.

 

I didn't foresee oil trading this low a few month back. 8 dollars was cheap will oil @ 100 with tight supply. $4 was cheap when oil @80. Probably cheaper than $3 with 65 oil.

 

The dividend was secured @80 USD oil but they will have to cut for 65$ if it last too long.

 

 

 

[doc75]

I didn't foresee oil trading this low a few month back. 8 dollars was cheap will oil @ 100 with tight supply. $4 was cheap when oil @80. Probably cheaper than $3 with 65 oil.

 

The dividend was secured @80 USD oil but they will have to cut for 65$ if it last too long.

 

They did give themselves an "out" with regards to the dividend.  They emphasized that they'll make their capital plans (including dividend, presumably) based on the duration of low prices, as opposed to a particular one-off low price threshold. 

 

I'm sure you're right about a cut if oil is at $65 or lower for a quarter or two.

 

I just don't like Roberts' recent statement about having to pay people to stay "in the story".  I hope the conversation around the boardroom table is a little different!

[Scudbucket]

If the dividend gets cut now or in a couple of months because oil stays this low, does that matter for the next couple of years if oil trades back up?  If you buy this low, given the assets, I think the probability is high that an investment will be positive in a couple of years.