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Penn West Petroleum Ltd. Message Board

  • mrpev mrpev Jan 22, 2014 1:32 PM Flag

    Reality check

    As an investor in PWE I was disappointed with results of updated asset sales, production guidance and debt reduction. Initially I was thinking something was wrong in numbers. The production decline was relatively greater than sold producing assets. And debt reduction was less than proceeds from prior sales.
    However I recalled the latest CC and almost everything was understandable.
    Roberts is focusing on profitability, not general production numbers. They are not always correlated.
    PWE was criticized for higher than industry drilling/completion costs and very low profitability. They have resolved this problem in a very short time. In Q4 the average drilling/completion cost per well was just $1482. Even in their highest cost Cardium the costs were $2300 and $2900 which are below neighbor companies costs of 3000-4000.
    PWE has stopped supporting higher production cost/lower profitability areas resulting in production decline (those assets are likely for sale). They reallocated capex resources to more profitable core production areas. Roberts warned during CC that capital reallocation will not add more production in H1, but will compensate in H2 instead. There should be a depth of the curve in H1.
    David E. Roberts
    “And the remainder of that is what we are trying to describe in terms of this capital shift that basically doesn’t show any significant production ads until the back half of 2014. And so you get a more pronounced depth of the curve into 2014, which will allow you to get to that average number.”
    This clearly explains the 5700 bpd reduced production was relatively high to 175mm in assets sales. Some production was just lost naturally and was not supported by new capex. Roberts stopped putting new money after bad.

    Sentiment: Strong Buy

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    • This is the recipe that chk followed and it took a good 9 months before the share price reacted positively

    • smart_like_a_pwe_investor smart_like_a_pwe_investor Jan 22, 2014 2:21 PM Flag

      Since when does "reality" enter into your calculations? The "reality" has been there for a very very long time, all one had to do was open the eyelids and see it, or at least remove the blinders. $13 to $11 to $10 to $8... let's try to forget the older history of $40 to $35 to $30 to $25 to $20 to $17 to $15. I mean really. Just how MUCH reality do you need to kick you in your face before you wake up? Yeah yeah, I know. "It's all different now, that's old history, this thing is poised to pop". Sure thing. Heard that at every other step down too. And with much better fundamentals going for it then than it has now. Go ahead, savvy investors, drink the koolaid. Have another sip. It won't hurt much.

    • I guess some MMs play hard on PWE. Probably they want get shares at lower price by beating down the stock, and buy all stop selling orders. Yesterday announcement is actually good news.
      Overall the production number for 2014 only drop 5-7%, which is very reasonable because low efficient assets will be sold or shut down. The revenue is lower, but profit margin will be improving.

    • yes but the fact remains that the div is about 50c US (given loonie at .9) and by the company's own admission, they will barely cover it (actually slight negative) and the "sustainability ratio" is over 100% out through 2018....without any growth, a sub 7% yield is quite low - u can get an decent E&P MLP yielding 9+% with tax shelter....i don't see the compelling value argument here even if you believe the turnaround story....

      • 1 Reply to quantuon
      • I personally like more organic growth stories paying modest dividends than pure dividend plays because high yielders are susceptible to quick losses during commodity price fluctuation. REITs are better for yield… if you believe that interest rates will not rise.
        PWE should become a growth story at the end of 2014 (on guidance).
        As far as dividend sustainability the PWE discipline in focusing on lower costs and profitability and the current oil/ng price trends provide conviction of sustained dividend.

    • That was how I read it mrpev. PWE getting punished for actually doing the things to make the company stronger and more profitable. Too narrow a focus on production and not enough on profitability by investors. Still if they can sell some large assets that free up cash for increased drilling that might happen sooner than later.

      Sentiment: Strong Buy

      • 2 Replies to georgia_stock_investor
      • Georgia stock investor, it is common and easier way for many investors to read just production numbers. That approach hides internal problems such as wrong capital allocation, production costs etc. Roberts inherited clear mess when high production hided profitability and cash flow problems. He tries to change very quickly, may be even too quickly for my taste, but he does absolutely right things IMHO. The future production growth should be fueled mostly by cash flow from low production costs with possibly very slight debt increase than just by pure debt increase.
        The idea is to reduce debt to ~1.5 bln by selling assets and then bring production to 2013 level and higher by maintaining same debt level compared to 3.2 bln in 2013. If implemented, the stock will rise substantially.

      • smart_like_a_pwe_investor smart_like_a_pwe_investor Jan 22, 2014 2:22 PM Flag

        Time to go back to school to learn to read the basics then.

    • excellent review..I could not have said it any better...thanks for the discussion...I bought 1000 at 7.18...I am believer in the strategy.

      Sentiment: Strong Buy

    • The 2nd problem was with just 300 mm debt reduction from 3.2 bln to 2.9 bln after 485 mm phase 1 asset sales. This is still not quite clear, but after substantial drilling cost and capex reduction PWE cash flow operation should be positive with no doubts (we will likely get more clarification tomorrow and final results in the next ER), so extra cash was likely assigned for short term business for flexibility. Roberts is dealing with a mess from previous management. I expect Phase 2 proceeds and even the remaining portion from Phase 1 will be spent for debt reduction.
      This is the bottom process, painful for investors, and not everything is clear for bulls and bears, but patience will be rewarding for bulls IMHO. Commodity prices are improving and should continue this trend in 2014 and 2015 based on fundamentals. This will help PWE to implement its turn around plan and put the company on strong footings for growth.
      I bought a little this morning. Staying the course.

      Sentiment: Strong Buy

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