Feb. 10, 2015 4:59 AM ET | 153 comments | About: Penn West Petroleum Ltd. (PWE), Includes: LSTMF, YLWDF
Disclosure: The author is short PWE, LSTMF. (More...)
American investors of PWE not familiar with the Canadian restructuring process should familiarize themselves with CBCA debt restructuring plans of arrangement.
Penn West has similarities to Yellow Media and Compton Petroleum, two companies that underwent the CBCA and essentially wiped out shareholders.
The bank lending facilities, breach of debt covenants and capital spending restrictions may work against PWE as it tries to navigate through this low oil price environment.
PWE represents a mediocre risk-return proposition to me at $3 as equity could be wiped out just as much as it could gain 100%+.
My advice to holders of investments in highly indebted oil companies is to diversify as much as possible.