The $3 billion debt has long weighed on PWE's results...
...and it's an overhang going forward. So, Rick George's first order of business is to sell $2 billion or so worth of assets to pay down the debt. Fortunately, Penn West should have little trouble raising that amount of cash because of its huge landholdings and producing assets. PWE will focus on Viking, Cardium and Slave Point. The BOD has indicated that supporting the dividend at the current level is a priority.
At the current stock price, the risk/reward profile seems attractive. Investors collect a nice 6.5% dividend, while waiting for George to execute the long-term business plan, which ultimately should result in higher shareholder value down the road. Sure, I understand that for those like myself who got into PWE at prices above the current trading price, the stock price drop stings. On the other hand, CEO Rick George has ample "skin in the game" via his PWE stock ownership, giving him every incentive to turn Penn West around, and I think the long-term plan he detailed yesterday is the first step in that process. If George executes, keeping his plan within the parameters he discussed in the cc and presentation on the corporate website, it is likely that investors will gain confidence over time. I'm predicting weakness in the stock through yearend as tax-loss selling keeps PWE under pressure, followed by a nice pop into the new year, perhaps beginning sometime in December.
My thesis for owning this stock is: The BOD finally dumped Nunn, who had mismanaged Penn West, and had piled up excessive debt. CEO Rick George appears to have a feasible plan to sustain the current dividend while restoring PWE by cutting costs, boosting efficiency, and focusing resources on the best plays (Viking, Cardium and Slave Point). Penn West is still a resource-rich company with huge landholdings in the top light oil plays in western Canada, and I feel the size of its resource base goes a long way toward mitigating concern over the $3 billion debt load.