Penn West squeaks along
Penn West released it's second quarter results on July 30,2015.It had a number of operational statistics that were down understandably but some were constant and some were up slightly.Gross revenues were down from $656 million in 2014 to $360 million in Q2 2015.And net income was down from a $143 million gain to a $28 million loss.Production was down from 106,700 barrel per day in 2014 to 91,100 barrels per day in the Q2 2015.And importantly their netback went from $39.37 to $18.72 in Q2 2015.
Much of this was predictable but Penn West also had some encouraging indicators.Capital expenditures went from $65 million in Q2 2014 to $64 million in Q2 2015.Funds from operations went from $299 million in Q2 2014 to $79 million in Q2 2015.But it went from $72 million in Q1 2015 to $79 million in Q2 2015.Penn West says that FFO is the most important performance indicator and it has remained constant.
How is there debt?
Penn West says that it has been paring down it's debt but they show only a slight reduction;it went from $2234 million to $2206 million in this quarter.They pais off $165 million in senior notes but they increased the size of their bank facility.They have closed asset divestitures of $414 million in this quarter.And they intend to sell another $650 million in the 2015 or 2016.Consequently they are well below their covenants on long term debt.Senior debt to EBITDA was 3.2 compared to the limit of 5.0.They will have to pay down the bank facility in order to increase liquidity for the coming quarters and more importantly to reduce their long tern debt.
Drilling Activity
Penn West's capital program is the same size as in Q2 2015.Most of their drilling is focused on the Cardium and the Viking areas.It has 3 drilling rigs active now and another 4 coming on in Q3.14 new wells are coming onstream in the Cardium and production exceeded expectations here.It is drilling in a new area that hasn't had much drilling previously and seems to have a sizeable reservoir.It also brought 9 new wells onstream in the Viking and production here is greater than estimated production.Penn West is using new techniques that reduce production costs by 15 to 30%.
It is starting to do more drilling on it's Peace River property.But it has a partnership here and the working partner paid 90% of the costs so far.There are no operating wells here yet but this is still a promising area and work will continue.Penn West also has a couple of farm out arrangements and has been successful here;it has 6 wells that have spud on their farm out lands.Penn West has been forced to be creative with the price of oil staying so low.And so has made a number of new initiatives to keep production levels high.
Hedges
Penn West ahs made a number of hedges in the $70/barrel area which has enhanced revenues.In fact, it has hedged 52,000 barrels/day up to Q3 2016.But only for a period of time;for example some is hedged only until Q3 2015They will have to be replaced with new hedges.
The Foreseeable Future
Penn West has 4.5 million acres of oil bearing lands.One of their main strategies is to drill exploratory wells close to probable reservoirs of oil and to increase the value of their lands.This keeps the value of non-core assets high and allows for good cash dispositions from non-core assets.It is the sale of non-core assets that allows Penn West to pay down debt and keep their capital program so active.Penn West also does what other small producers do;they reduce production costs,they use working partnerships and farm out agreements.As it is more profitable to have a farm out agreement than sell the land.Also they ,like other producers,use hedges to augment revenues.
This blog counts on the price of oil remaining at or near the $50 per barrel area for the rest of the year.Possibly it will hit $50 to $55 per barrel at year end.It is also likely that PWT will sell off more non-core assets for $650 million in late 2015 and reduce it's bank credit facility.It also must replace hedges that have been contracted for up to Q3 2016.Hopefully their new area(in the Cardium) will continue to outperform as it has in the first 2 quarters.Also this blog expects that some production will come soon from the Peace River area just as it has from the farm out agreements.Penn West will have to do some good old Canadian engineering to get it's production closer to 100,000 barrels per day(especially with the assets dispositions).However it is indeed Canadian engineering that will allow the price to climb up to the $2.00 per share for the second half. Either way Penn West will keep squeaking along until the price of oil climbs back to the $60 to $65 per barrel area.
Much of this was predictable but Penn West also had some encouraging indicators.Capital expenditures went from $65 million in Q2 2014 to $64 million in Q2 2015.Funds from operations went from $299 million in Q2 2014 to $79 million in Q2 2015.But it went from $72 million in Q1 2015 to $79 million in Q2 2015.Penn West says that FFO is the most important performance indicator and it has remained constant.
How is there debt?
Penn West says that it has been paring down it's debt but they show only a slight reduction;it went from $2234 million to $2206 million in this quarter.They pais off $165 million in senior notes but they increased the size of their bank facility.They have closed asset divestitures of $414 million in this quarter.And they intend to sell another $650 million in the 2015 or 2016.Consequently they are well below their covenants on long term debt.Senior debt to EBITDA was 3.2 compared to the limit of 5.0.They will have to pay down the bank facility in order to increase liquidity for the coming quarters and more importantly to reduce their long tern debt.
Drilling Activity
Penn West's capital program is the same size as in Q2 2015.Most of their drilling is focused on the Cardium and the Viking areas.It has 3 drilling rigs active now and another 4 coming on in Q3.14 new wells are coming onstream in the Cardium and production exceeded expectations here.It is drilling in a new area that hasn't had much drilling previously and seems to have a sizeable reservoir.It also brought 9 new wells onstream in the Viking and production here is greater than estimated production.Penn West is using new techniques that reduce production costs by 15 to 30%.
It is starting to do more drilling on it's Peace River property.But it has a partnership here and the working partner paid 90% of the costs so far.There are no operating wells here yet but this is still a promising area and work will continue.Penn West also has a couple of farm out arrangements and has been successful here;it has 6 wells that have spud on their farm out lands.Penn West has been forced to be creative with the price of oil staying so low.And so has made a number of new initiatives to keep production levels high.
Hedges
Penn West ahs made a number of hedges in the $70/barrel area which has enhanced revenues.In fact, it has hedged 52,000 barrels/day up to Q3 2016.But only for a period of time;for example some is hedged only until Q3 2015They will have to be replaced with new hedges.
The Foreseeable Future
Penn West has 4.5 million acres of oil bearing lands.One of their main strategies is to drill exploratory wells close to probable reservoirs of oil and to increase the value of their lands.This keeps the value of non-core assets high and allows for good cash dispositions from non-core assets.It is the sale of non-core assets that allows Penn West to pay down debt and keep their capital program so active.Penn West also does what other small producers do;they reduce production costs,they use working partnerships and farm out agreements.As it is more profitable to have a farm out agreement than sell the land.Also they ,like other producers,use hedges to augment revenues.
This blog counts on the price of oil remaining at or near the $50 per barrel area for the rest of the year.Possibly it will hit $50 to $55 per barrel at year end.It is also likely that PWT will sell off more non-core assets for $650 million in late 2015 and reduce it's bank credit facility.It also must replace hedges that have been contracted for up to Q3 2016.Hopefully their new area(in the Cardium) will continue to outperform as it has in the first 2 quarters.Also this blog expects that some production will come soon from the Peace River area just as it has from the farm out agreements.Penn West will have to do some good old Canadian engineering to get it's production closer to 100,000 barrels per day(especially with the assets dispositions).However it is indeed Canadian engineering that will allow the price to climb up to the $2.00 per share for the second half. Either way Penn West will keep squeaking along until the price of oil climbs back to the $60 to $65 per barrel area.
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