Penn West has fallen from $7 and $8 a share,a year ago, to a low of $.80 recently.But during this period oil fell to a low recently of $38 a barrel.Oil is now about $50 a barrel and Penn West has recovered to about $1.50 a share.But Penn West has not recovered only because of the price of oil.It has sold off a lot of non-core assets to reduce it's senior debt.Unfortunately it's equity has been reduced also so it's debt/equity ratio has improved only slightly.
Non-core Assets
Penn West has sold mostly smaller parcels of land with proven reserves.Earlier in the year they sold a 9.5% interest in their
Weyburn property in southeast Saskatchewan for $205 million.Upon completion of the sale they will have raised $810 million in proceeds for 2015.They gave guidance that they would have non-core asset dispositions of $650 million and have surpassed their target.They intend to continue to pursue additional asset divestitures in 2015.
Before this sale they announced that they sold their Mitsue properties in Alberta for $192.5 million.In the first half of 2015 The Mitsue properties had produced 4500 barrels per day.The sales price was 14 times implied net operating incomehere and 13 times for the Weyburn property.
Debt Reductions
Debt has fallen since Q2 2014 by $1.4 billion and that has principally come from the sale of non-core assets.Debt fell from $3.2 billion to $1.9 billion but the debt/equity ratio only moved to .34 from.36.Penn West has used the sales to stabilize their capital expenditures and continue drilling on their explored land to increase it's value.This blog believes that drilling on unexplored land has probably been reduced.Drilling will be focussed on step-out wells near already discovered reservoirs. Work will be focussed on expanding existing resources and finding oil that is easy to deliver to market.This makes a noticeable increase in the value of already partly explored land.And they have streamlined production which has made cost savings.The cost savings in operational expenses have helped to increase their netback on oil.This helps to increase cash flow.Successful drilling is a key part of the Penn West program.That is why the reduction in the value of total assets has fallen lately.Some of the remaining land has gone up in value.
The Book Value
Penn West has a large book value of their assets;it is $10.6 per share according to Yahoo Finance.They also show the price/book value of assets at about .12.Penn West was forced to find a way to increase the market value of their assets even with the falling price of oil and they are starting to do so.The price of oil may stay around $50 per barrel for awhile and they must continue to have strategic and successful drilling while costing less per well.The rest is up to the West Texas Intermediate price of oil.
The rest of 2015
Experts are calling for further sales of assets in 2015.Some are calling for the sale of part of their jewel in Saskatchewan- their Viking property.This blog notes that the multiple of net operating income fell from 14 times to 13 times for their last sale.That is because the production was greater at the Mitsue property but the Weyburn property overall is more valuable.So the multiple was greater on the Mitsue properties.This blog calls for them to retain their Viking properties and sell further non-core assets that are contiguous to other producing properties.This however may include Viking properties with very small production figures.The key is to keep up their successful drilling to enhance the value of existing land and not to sell core assets.This will tie them over until the price of oil heads towards $60 a barrel.Over the last month it is looking like investors see the value of their strategy. see Workathon(blogger) for analysis of resource stocks; see Workathon(blogger) for corporate analysis
Friday 9 October 2015
Friday 2 October 2015
Perpetual Energy -perpetual poster boy for central Alberta
Perpetual Energy is an Alberta company(a junior gas producer) that I have followed for several years.For seven or eight quarters it had constant(or perpetual production) at 19,000 to 21,000 boe/day.But it always had an active and productive drilling program.It bought land and discovered significant natural gas reservoirs in the Edson structure in central Alberta.This is a little known structure in central Alberta.At first it seemed like there was only natural gas in the East Edson area but later liquids were found in the West Edson area also.This changed everything about Perpetual Energy.
The Swap
On April1, 2015 PMT announced that it had swapped all joint interest lands in West Edson together with the wells with a production of 5,750 boe/day of natural gas production for 6.75 million Tourmaline Oil and Gas shares (TOU).It previously announced that it had a joint venture with Tourmaline for only a portion of the West Edson production.At the time of the April announcement Tourmaline shares were selling for about $38 a share.The deal was worth about $250 million.This however reduced Perpetual's production from 22,819 boe/day in the first quarter to 16,621 boe/day in the second quarter.Natural gas production at 86 MMcf/day was down while natural gas liquid production was only marginally lower than that in 2014.In addition, crude oil production was down almost 15% from 2014.
The Remaining Operation
Exploration and development spending for Q2 2015 was $13 million.$12 million of this total was spent to complete construction of the East Edson gas plant.Total expenditures were about $31 million on the processing plant along with gathering systems and tie-in operations of the wells.Also on April 10,2015 they sold land in east central Alberta for $21 million to reduce debt.However funds from operations(FFO) fell from $25 million in Q2 2014 to $3 million which was partly affected by the West Edson swap.Operating netbacks in Q2 were $10.16 boe which was 64% higher than Q1.This partly reflected cost savings and partly a small increase in prices.PMT also recorded gains of $135 million on other asset swaps and asset dispositions.So total debt was down from $360 million to $120 million.This aside from the TOU shares they had valued at $253 million.
The East Edson property
The original discovery in the Edson structure was at East Edson.It is not known how far west Perpetual still owns.But next West Edson was discovered and then PMT made a joint venture to develop it faster.Now most of it has been sold but there may be the southwest corner that remains with PMT.Development at East Edson is continuing on the construction of a gas processing plant.It opened in July,2015 but PMT expects to expand it another 50% in the third quarter.It may drill another two well pad here as there are another 87 undeveloped drilling locations and a further 22 future development locations.East Edson seems to be a large property and the Tourmaline shares may only be used to develop this land.
Outlook
The outlook for Perpetual Energy looks brighter now than it did at the start of the year.It's total assets have increased from $747 in 2014 to $845 million in 2015 while debt has fallen from $359 million to $120 million in 2015.Perpetual has 5 wells and one being converted in a pool at their Mannville heavy oil property.But they will not develop this with the present oil prices.They have a substantial capital expenditure program and will spend almost it all on East Edson.Their gas processing plant will be soon expanded by 50% and allow for increased production.Perpetual says that with the present size of the gas plant that they have replaced all lost production from West Edson.If this is true then when the processing plant has been expanded in the third quarter they will finally see production go higher than 22,000 boe/day.Two questions remain for investors.(1) Did they keep the southwest corner of West Edson for their own production? and (2) How far west does their East Edson property extend?This will determine whether Perpetual Energy goes back up beyond $1.00 per share.Either way Perpetual Energy is a successful driller in a little known area -the Edson structure and made it work.
The Swap
On April1, 2015 PMT announced that it had swapped all joint interest lands in West Edson together with the wells with a production of 5,750 boe/day of natural gas production for 6.75 million Tourmaline Oil and Gas shares (TOU).It previously announced that it had a joint venture with Tourmaline for only a portion of the West Edson production.At the time of the April announcement Tourmaline shares were selling for about $38 a share.The deal was worth about $250 million.This however reduced Perpetual's production from 22,819 boe/day in the first quarter to 16,621 boe/day in the second quarter.Natural gas production at 86 MMcf/day was down while natural gas liquid production was only marginally lower than that in 2014.In addition, crude oil production was down almost 15% from 2014.
The Remaining Operation
Exploration and development spending for Q2 2015 was $13 million.$12 million of this total was spent to complete construction of the East Edson gas plant.Total expenditures were about $31 million on the processing plant along with gathering systems and tie-in operations of the wells.Also on April 10,2015 they sold land in east central Alberta for $21 million to reduce debt.However funds from operations(FFO) fell from $25 million in Q2 2014 to $3 million which was partly affected by the West Edson swap.Operating netbacks in Q2 were $10.16 boe which was 64% higher than Q1.This partly reflected cost savings and partly a small increase in prices.PMT also recorded gains of $135 million on other asset swaps and asset dispositions.So total debt was down from $360 million to $120 million.This aside from the TOU shares they had valued at $253 million.
The East Edson property
The original discovery in the Edson structure was at East Edson.It is not known how far west Perpetual still owns.But next West Edson was discovered and then PMT made a joint venture to develop it faster.Now most of it has been sold but there may be the southwest corner that remains with PMT.Development at East Edson is continuing on the construction of a gas processing plant.It opened in July,2015 but PMT expects to expand it another 50% in the third quarter.It may drill another two well pad here as there are another 87 undeveloped drilling locations and a further 22 future development locations.East Edson seems to be a large property and the Tourmaline shares may only be used to develop this land.
Outlook
The outlook for Perpetual Energy looks brighter now than it did at the start of the year.It's total assets have increased from $747 in 2014 to $845 million in 2015 while debt has fallen from $359 million to $120 million in 2015.Perpetual has 5 wells and one being converted in a pool at their Mannville heavy oil property.But they will not develop this with the present oil prices.They have a substantial capital expenditure program and will spend almost it all on East Edson.Their gas processing plant will be soon expanded by 50% and allow for increased production.Perpetual says that with the present size of the gas plant that they have replaced all lost production from West Edson.If this is true then when the processing plant has been expanded in the third quarter they will finally see production go higher than 22,000 boe/day.Two questions remain for investors.(1) Did they keep the southwest corner of West Edson for their own production? and (2) How far west does their East Edson property extend?This will determine whether Perpetual Energy goes back up beyond $1.00 per share.Either way Perpetual Energy is a successful driller in a little known area -the Edson structure and made it work.
Thursday 1 October 2015
Transalta Renewables arranges cheap financing
On September 24,2015 Transalta Renewables announced that it priced a $442 million bond for a subsidiary.The bond will be secured by a first ranking charge on Transalta Renewables ;it is senior secured debt.The interest rate will be 3.834%which is a good rate and it will mature in 2028.The bonds will have a rating of BBB.This is an above average to good commercial rate and is only two rankings below A-A-A-.
Operational Statistics
Almost all operational statistics have improved over the same quarter last year.EBITDA at $52 million and funds from operations(FFO) at$43 million have increased by $16 million over 2014.And earnings at $22 million was up from the $6 million recorded last year.These increases are due partly to the contribution from the newly acquired Australian assets.In May they completed the $1.78 billion investment in Transalta's 425 MW gas fired generation assets in Australia.
The New Bond
The new bond will be a $442 million senior secured bond maturing in 2028 and carrying an interest rate of 3.834%.Net proceeds of the financing will be used to make advances to Canadian Hydro Developers on "an intercompany loan agreement".Payments will be made on loans on three facilities (two in Shelburne,Ontario and one on Wolfe Island,near Kingston).The facility at Shelburne is a 200MW wind powered generator and at Wolfe Island also a 200MW wind powered generator.The projects are 100% contracted to IESO and utilize proven turbine technology.
RNW Increases Equity
Transalta spun off 16 wind powered assets and 12 hydroelectric powered generation facilities into Transalta Renewables (RNW).The facilities have an installed generating capacity of 1856 MW.And it has an ownership interest of 1680 MW in the facilities. Transalta put some of the most profitable assets in RNW.In addition,RNW bought for $1.8 billion most of Transalta's Australian assets.With the closing of the Australian transaction RNW increased the dividend by 9% and will increase it another 7% upon completion of construction. The new $442 million bond will be used to pay an intercompany loan with Canadian Hydrodevelopers.The nature of the loan agreement is not clear but it is possible that the loans are secured by equity that Canadian Hydro has in these assets.It is also not clear whether Cdn. Hydro will still have equity in these assets after these payments.If so then RNW will be able to issue other bonds as it does not appear to have much debt and it will soon have new assets coming onstream in Australia.
Summary of the Transaction
There is not much information available on the RNW capital structure so this blog will try and estimate it.Transalta spun off their wind and hydroelectric assets but did it take any debt with it?Probably not much if any.The investment in the Australian assets did not take on much debt and so it is possible that this $442 million bond is about the first debt taken on.If this is approximately true then RNW has lots of debt capacity to buy back assets or expand existing assets.There are other estimates of RNW''s capital structure but at this time neither Transalta nor RNW is making it very clear just how much debt RNW took from it's parent.But we do know that BBB is a good credit rating and 3.834% is a pretty good interest rate.It does not look like the credit rating agency saw much debt on the books. workathon has financial analysis;workathon does utility analysis;workathon does corporate analysis
Operational Statistics
Almost all operational statistics have improved over the same quarter last year.EBITDA at $52 million and funds from operations(FFO) at$43 million have increased by $16 million over 2014.And earnings at $22 million was up from the $6 million recorded last year.These increases are due partly to the contribution from the newly acquired Australian assets.In May they completed the $1.78 billion investment in Transalta's 425 MW gas fired generation assets in Australia.
The New Bond
The new bond will be a $442 million senior secured bond maturing in 2028 and carrying an interest rate of 3.834%.Net proceeds of the financing will be used to make advances to Canadian Hydro Developers on "an intercompany loan agreement".Payments will be made on loans on three facilities (two in Shelburne,Ontario and one on Wolfe Island,near Kingston).The facility at Shelburne is a 200MW wind powered generator and at Wolfe Island also a 200MW wind powered generator.The projects are 100% contracted to IESO and utilize proven turbine technology.
RNW Increases Equity
Transalta spun off 16 wind powered assets and 12 hydroelectric powered generation facilities into Transalta Renewables (RNW).The facilities have an installed generating capacity of 1856 MW.And it has an ownership interest of 1680 MW in the facilities. Transalta put some of the most profitable assets in RNW.In addition,RNW bought for $1.8 billion most of Transalta's Australian assets.With the closing of the Australian transaction RNW increased the dividend by 9% and will increase it another 7% upon completion of construction. The new $442 million bond will be used to pay an intercompany loan with Canadian Hydrodevelopers.The nature of the loan agreement is not clear but it is possible that the loans are secured by equity that Canadian Hydro has in these assets.It is also not clear whether Cdn. Hydro will still have equity in these assets after these payments.If so then RNW will be able to issue other bonds as it does not appear to have much debt and it will soon have new assets coming onstream in Australia.
Summary of the Transaction
There is not much information available on the RNW capital structure so this blog will try and estimate it.Transalta spun off their wind and hydroelectric assets but did it take any debt with it?Probably not much if any.The investment in the Australian assets did not take on much debt and so it is possible that this $442 million bond is about the first debt taken on.If this is approximately true then RNW has lots of debt capacity to buy back assets or expand existing assets.There are other estimates of RNW''s capital structure but at this time neither Transalta nor RNW is making it very clear just how much debt RNW took from it's parent.But we do know that BBB is a good credit rating and 3.834% is a pretty good interest rate.It does not look like the credit rating agency saw much debt on the books. workathon has financial analysis;workathon does utility analysis;workathon does corporate analysis
Subscribe to:
Posts (Atom)