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Genworth Financial, Inc. Message Board

dog01buck 4 posts  |  Last Activity: Sep 28, 2014 11:10 AM Member since: Sep 18, 2012
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  • Penn West: Putting Its House In Order
    Sep. 28, 2014 5:37 AM ET | 2 comments | About: Penn West Petroleum Ltd. (PWE)
    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
    Summary

    Penn West is recovering after it was hit with a major accounting scandal.
    The company has recently released its impressive second quarter results.
    The company has set its eyes on its long-term future.
    Is it worth investing?
    Penn West Exploration (NYSE:PWE), one of the leading Canadian exploration and production companies, has been eyeing a turnaround under the new leadership but the company's efforts received a major setback earlier this year due to an accounting scandal. However, the Calgary-based oil producer seems to have put most of its problems behind it.

    Penn West operates primarily in Western Canada and focuses on production of light oils from its reserves spread over five million acres. The company is focusing on producing from three core plays, Cardium, Viking and Slave Point.

    Penn West holds 625 million barrels of proved and probable (2P) reserves, of which 67% are proved, valued at $8.9 billion. These assets consist of 50% light and medium oil, 30% natural gas, 13% heavy oils and 7% natural gas liquids, or NGLs. At Cardium, where Penn West is eyeing its long term future, the company has booked 161 million barrels of oil equivalents of 2P reserves while Viking and Slave Point could have 31 million and 40 million barrels of 2P reserves respectively.

    Accounting Scandal

    Earlier in July, Penn West made headlines when its new CFO discovered accounting irregularities related to misclassification of some of the operating expenses dating back to 2007. Since then, the company's shares have plummeted by23 %, currently trading around $7, as investors braced for the full impact on the company's earnings and balance sheet.

  • Reply to

    Penn West: Putting Its House In Order

    by dog01buck Sep 28, 2014 11:05 AM
    dog01buck dog01buck Sep 28, 2014 11:06 AM Flag

    The company has recently released its quarterly results, with an update on its accounting review, last Thursday which shows that the markets might have over-reacted.

    Penn West has performed an internal review of the accounting policies and has restated its results from the first quarter of this year going back to 2012. The company did not find any reason to restate the results prior to 2012. The main changes that the company has made are shown in the picture below.

    (click to enlarge)

    The impact on net income is largely uneven, the operating costs increased while fund flows decreased. Fund flows is a non-GAAP measure used by Penn West which shows cash flows from operations before changes in non-cash working capital and decommissioning expenditures. It is used to measure the company's ability to reward shareholders through dividends and fund its capital expenditures.

    More importantly, the accounting irregularities did not hit Penn West's balance sheet and its future growth plans, albeit it has reclassified its development capital expenses as operated expenses which caused 8.9% drop in its capital budget for this year to $645 million.

    Strong Quarter

    During the quarter, Penn West reported 12.75% drop in gross revenues to $585.3 million on the back of lower production which fell to 106,706 barrels of oil equivalents, or boe, per day, a drop from 140,083 boe per day in the same quarter last year. Some of the drop was due to asset dispositions. That said, the latest production numbers were in line with the company's 2014 production forecast of 101,000 to 106,000 boe per day.

    Meanwhile, Penn West reported 13.9%, 18.3% and 34% increase in sales price of light oils/NGLs, heavy oil and natural gas respectively. This led to an increase in fund flows from $249 million a year ago to $298 million in the previous quarter.

  • Reply to

    Penn West: Putting Its House In Order

    by dog01buck Sep 28, 2014 11:05 AM
    dog01buck dog01buck Sep 28, 2014 11:09 AM Flag

    The company swung to a net profit of $128 million from a loss of $48 million in the same quarter last year, due to the strength in the Canadian dollar, 45% drop in operating expenses and 29% lower depletion and depreciation charges.

    Penn West also improved its financial health by lowering its net debt by $242.24 million from the first quarter of 2014 to $2.1 billion at the end of second quarter. Penn West has been trying to improve its financial health for the last six years following the $3.2 billion takeover of Canetic Resources.

    Penn West also reported a drop in exploration and development capital expenditure by $1.8 million to $58.53 million due to the breakup conditions. During the quarter, Penn West drilled 10 light oil wells, of which 8 were in Viking, and completed 12 wells, of which 8 were in Cardium. The company also brought 10 Viking wells and 4 Slave Point wells on production.

    Overall, this was a strong quarter in which the company ended up beating both top and bottom line estimates, production was within expectations and the company managed to cut down its debt, despite all the negativity surrounding the accounting scandal.

    Looking Ahead

    Although Penn West did not post the aggressive growth it expected following the massive purchase of Canetic Resources, the company is now operating under a new top leadership, including a relatively new CEO, with a renewed focus on long-term growth.

    Following the corrections, Penn West is all set to pursue its restructuring process that involves $1.82 billion in asset disposals, cost saving initiatives and fueling the growth in its core operations; the light oil business.

  • Reply to

    Penn West: Putting Its House In Order

    by dog01buck Sep 28, 2014 11:05 AM
    dog01buck dog01buck Sep 28, 2014 11:10 AM Flag

    To save costs, Penn West has cut down its workforce by half from its peak levels of late-2012. The company has successfully brought down its drilling and completion costs since 2012 and has projected further reduction in the coming years at Cardium and Slave Point. At Cardium, Penn West has achieved substantial drilling efficiencies by bringing average number of drilling days from 22 to 8.

    Over the next four years, Penn West will spend 95% of its development capital on its three core areas and plans to drill hundreds of wells each year, particularly at Cardium.

    In its press release which came out last week, the company's president said, "In early July we had eight drilling rigs operating and we can reiterate our plans to drill 210 wells in the year within previous operated development capital estimates. Importantly our 2015 well planning is largely in place and we expect full year 2016 development plans to be well advanced by the end of 2014."

    In the previous quarter, the company obtained operator-ship of Pembina Cardium unit #11, which lies in the heart of Cardium's Pembina field as the company moves forward to develop this asset. Meanwhile, in July, a 30-well program was initiated in Cardium's Willesden Green area. With four rigs already in place, a fifth one will be added in October. Cardium's Pembina area is also expected to host a nine well program in late 2014.

    At Viking, during the latter half of the year Penn West, plans to drill 84 wells with 75 of them expected to be in production mode near the end of 2014.

GNW
8.59+0.60(+7.51%)Dec 19 4:08 PMEST

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