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
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