Penn West sells more non-core assets
On September16,2015 Penn West Petroleum announced that they intended to sell some properties in the Greater Mitsue area of Central Alberta for $192.5 million.Upon completion of the sale Penn West says that they will have raised U.S. $605 million of proceeds from assets divestitures.And the proceeds will be used to reduce it's senior debt.In the first half of 2015 the Mitsue properties had production of 4500 barrels of oil /day of which most was liquids.The sales price was 14 times the implied net operating income.The author is not familiar with recent land prices of oil bearing land but above 10 times seems like a good price for valuable land.
Other Metrics
This is a strategy used by Penn West and others to keep the capital expenditure program from falling dramatically.Canadian oil producers need to keep drilling on their unexplored lands in order to increase the value of reserves that are probable and not yet proved.In some cases the land will be less valuable with bad drilling results but if the land and oil reservoirs have been properly investigated the land will go up in value.
Debt has fallen since the second quarter of 2013 by $1.4 billion and this principally comes from the sale of non-core assets.And debt has fallen in total since 2011 from $3.2 billion to $1.9 billion.While the debt to equity ratio has fallen but only slightly over this period.It went from .36 in 2011 to .34 in 2014 as unfortunately the reductions in debt have been almost matched by the reductions in equity.Over the period of 4 years the book value of assets has fallen from $15 billion to $10 billion or by 33% but over the last 4 quarters it has only fallen 20%.
The Debt Reduction Strategy
In 2011 the total value of assets was about $15 billion and it has fallen to $9.85 billion now.The capital program expenditures have fallen also. It is likely that the less valuable land was sold first;now they are still selling but land closer to their "proven" reserves.The oil on these lands are called "probable" reserves.Often the reservoirs are connected or extensions of existing reservoirs that are being drilled.Here is where drilling can raise the value of their non core assets.This blog contends that the reduction in the value of the total assets is due to an increase in the value of both "proven" and"probable' reserves which partly offsets the drop in the price of oil.This blog believes that the deceleration in the reduction in the value of assets is due to an accurate while reduced drilling program that has increased the value of their acreage.This will likely continue further until the price of oil picks up as Penn West still has almost $10 billion in assets and most of this is land.
Other Metrics
This is a strategy used by Penn West and others to keep the capital expenditure program from falling dramatically.Canadian oil producers need to keep drilling on their unexplored lands in order to increase the value of reserves that are probable and not yet proved.In some cases the land will be less valuable with bad drilling results but if the land and oil reservoirs have been properly investigated the land will go up in value.
Debt has fallen since the second quarter of 2013 by $1.4 billion and this principally comes from the sale of non-core assets.And debt has fallen in total since 2011 from $3.2 billion to $1.9 billion.While the debt to equity ratio has fallen but only slightly over this period.It went from .36 in 2011 to .34 in 2014 as unfortunately the reductions in debt have been almost matched by the reductions in equity.Over the period of 4 years the book value of assets has fallen from $15 billion to $10 billion or by 33% but over the last 4 quarters it has only fallen 20%.
The Debt Reduction Strategy
In 2011 the total value of assets was about $15 billion and it has fallen to $9.85 billion now.The capital program expenditures have fallen also. It is likely that the less valuable land was sold first;now they are still selling but land closer to their "proven" reserves.The oil on these lands are called "probable" reserves.Often the reservoirs are connected or extensions of existing reservoirs that are being drilled.Here is where drilling can raise the value of their non core assets.This blog contends that the reduction in the value of the total assets is due to an increase in the value of both "proven" and"probable' reserves which partly offsets the drop in the price of oil.This blog believes that the deceleration in the reduction in the value of assets is due to an accurate while reduced drilling program that has increased the value of their acreage.This will likely continue further until the price of oil picks up as Penn West still has almost $10 billion in assets and most of this is land.
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