Penn West cuts back in 2015 and prepares for 2016
Penn West came out with two announcements recently.First they announced that it has sold off $355 million of non-core assets on Decmber1,2014.This made a total of $1.05 billion in non-core sales since November,2013.These lands were located in south central Alberta ;the funds were used to reduce debt.At that time Penn West added that they expected production of 101,000 to 106,000 barrels per day for 2015.
A New Announcement
However on December17,2014 Penn West made a revision to the figures contained as well as implied in the first announcement.The basic diference in assumptions was that the average price for a barrel of oil would be only $65 a barrel for 2015 rather than $86.50 originally assumed.Only 16 days later Penn West(PWT) realized that they had to cut their capital budget by $215 million from $840 to $625 million.This along with a reduction in the dividend from $.14 per share to $.03 per share which is paid quarterly.PWT also announced that there would be a reduction in production of 5% to 95,000 to 105,000 barrels per day.PWT also added that the drilling would be in well-known areas like the Viking and Cardium plays. Efficient Production
They added that this will result in increases in production,not decreases, in 2016.Obviously they are expecting new production from their drilling in 2015 from the Cardium and the Viking plays. At the same time PWT appears to have gone through it's operations and reduced cash costs by $400 million on an annualized basis.Yet it expects funds flow to be reduced from a range of $875 to$925 million to a range of $500 to $550 million now.On a per share basis this will be $1.01 to $1.12 per share.
Financial Capacity
PWT also gave some details about it's financial capacity; it has an unused financial credit facility of $1.7 billion.This facility is based on debt covenants not on reserves.PWT adds that it's debt covenants are in good standing.Their present debt to EBITDA ratio is about 2.0 and present debt to book capitalization is about 23%.With funds flow expected at $500 to $550 million in 2015 this will produce earnings per share in excess of $1.10 per share and make it quite a bargain at the present share price as the p/e ratio would be less than 2 times.
A New Announcement
However on December17,2014 Penn West made a revision to the figures contained as well as implied in the first announcement.The basic diference in assumptions was that the average price for a barrel of oil would be only $65 a barrel for 2015 rather than $86.50 originally assumed.Only 16 days later Penn West(PWT) realized that they had to cut their capital budget by $215 million from $840 to $625 million.This along with a reduction in the dividend from $.14 per share to $.03 per share which is paid quarterly.PWT also announced that there would be a reduction in production of 5% to 95,000 to 105,000 barrels per day.PWT also added that the drilling would be in well-known areas like the Viking and Cardium plays. Efficient Production
They added that this will result in increases in production,not decreases, in 2016.Obviously they are expecting new production from their drilling in 2015 from the Cardium and the Viking plays. At the same time PWT appears to have gone through it's operations and reduced cash costs by $400 million on an annualized basis.Yet it expects funds flow to be reduced from a range of $875 to$925 million to a range of $500 to $550 million now.On a per share basis this will be $1.01 to $1.12 per share.
Financial Capacity
PWT also gave some details about it's financial capacity; it has an unused financial credit facility of $1.7 billion.This facility is based on debt covenants not on reserves.PWT adds that it's debt covenants are in good standing.Their present debt to EBITDA ratio is about 2.0 and present debt to book capitalization is about 23%.With funds flow expected at $500 to $550 million in 2015 this will produce earnings per share in excess of $1.10 per share and make it quite a bargain at the present share price as the p/e ratio would be less than 2 times.
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