CALGARY, Dec. 17, 2014 /CNW/ - PENN WEST PETROLEUM LTD.
(TSX – PWT; NYSE – PWE) ("Penn West" or the "Company")
announces that in response to the current commodity price
environment, it is reducing its capital budget by approximately
$215 million and reducing its 2015
dividend by approximately $160
million commencing with the 2015 first quarter dividend
payment payable on April 15,
2015.
In November 2014, when Penn West
announced its 2015 capital budget, the forward strip for crude oil
was in the range of the Company's Canadian per barrel modeling
assumption of $86.50. Since that time
however, crude oil prices have declined significantly. Reflecting
this reduction in the outlook for crude oil prices, the Company has
reduced its Canadian crude oil pricing assumption for 2015 by
approximately 25 percent to $65.00
per barrel. In order to maintain financial flexibility, the capital
budget has been reduced by approximately $215 million from $840
million to $625 million. In
addition, the Board has approved a reduction to Penn West's
quarterly dividend commencing in the first quarter of 2015 to
$0.03 per share from $0.14 per share (subject to final Board review
and approval of each quarterly dividend prior to the declaration
thereof).
Commenting on today's announcement, Dave
Roberts, President and CEO stated,"Penn West's business
model assumes a conservative long run-term commodity price,
however, the recent downturn falls outside our lowest probabilistic
expectations. We have assured our investors that our business is
strong and that we would reduce capital rather than seeking to
increase production into a declining commodity cycle - focusing on
profitability not production. The fundamental attraction of the
Company remains a best in basin light oil opportunity across three
play areas in western Canada. We
have the advantage of being able to adjust our spending profile
across a diverse portfolio of assets to maximize our returns and
focus on higher cash returning assets in such a commodity price
environment. In addition, we have a number of other means available
to protect our long-term sustainability in the event that low
commodity prices persist. Our resources are secure, our operational
performance demonstrated, our future intact".
SUSPENSION OF DRIP
Commencing with Penn West's first quarter 2015 dividend, payable on
April 15, 2015, the Board has
suspended Penn West's DRIP until further notice. The DRIP had
permitted shareholders to apply their cash dividends to the
purchase of Penn West common shares. Shareholders who had elected
to participate in the DRIP will now receive cash dividends on the
payment date. If Penn West elects to reinstate the DRIP,
shareholders that were enrolled at suspension and remain enrolled
at reinstatement will automatically resume participation in the
DRIP. The DRIP will continue in effect for the fourth quarter 2014
dividend payment of $0.14 per share
to be paid on January 15, 2015 to
shareholders of record on December 31,
2014.
REVISED CAPITAL BUDGET AND PRODUCTION GUIDANCE FOR 2015
The $215 million capital budget
reduction reflects capital that is being deferred on longer cycle
time projects, certain waterflood project capital and other
non-development capital projects until the industry returns to a
stable and higher oil price environment. Much of the remaining
$625 million budget will be allocated
primarily toward development activities in the Cardium and Viking
core light oil areas. Despite the 25 percent reduction in capital
spending, the Company's production guidance for 2015 has only been
reduced by approximately five percent, to a range of 90,000 -
100,000 boe per day, a reflection of the high quality nature of the
Company's asset base and improved reliability in our production
deliverability. Included in this reduced production forecast is the
shut-in of approximately 2,000 boe per day of currently uneconomic
volumes. The decision to suspend production of approximately 2,000
boe per day actually increases funds flow by approximately
$20 million, again demonstrating the
disciplined focus on improving economic returns in the business
rather than just producing barrels. Importantly, Penn West still
forecasts production volumes growth in to 2016 on the revised
capital spending budget.
Since November 2013, Penn West has
been working hard building a business that can be successful in a
lower commodity price environment. During that period, we have been
attacking the cost structure of the business, reducing total cash
costs by approximately $400 million
on an annualized basis, and moved from being a bottom quartile
operator to top quartile operator in each of our core light oil
operating areas. In 2015, we will continue to drive costs down and
expect service costs to come down significantly reflecting the
impact of the lower crude oil prices.
Table 1: Summary of Changes to 2015 Capital Budget and
Assumptions
|
|
|
|
|
Nov 17,
2014
Budget
|
Dec 17,
2014
Revision
|
Change
|
Canadian Light
Sweet
Crude Oil Assumption
(C$/bbl)
|
$86.50
|
$65.00
|
-24.8%
|
AECO Natural Gas
Assumption
(C$/mcf)
|
$3.69
|
$3.25
|
-11.9%
|
C$/US$ Foreign
Exchange
Assumption
|
$1.04
|
$1.15
|
10.6%
|
|
|
|
|
Production
(Boe/d)
|
95,000 -
105,000
|
90,000 -
100,000
|
-5.0%
|
|
|
|
|
Capital Budget
(MM)
|
$840
|
$625
|
-25.6%
|
|
|
|
|
Funds Flow
(MM)
|
$875 -
$925
|
$500 -
$550
|
-41.7%
|
Certain information in this press release is included to provide
shareholders with information about the Company's expectations as
at December 17, 2014 for its
production, funds flow and capital budget in 2015 and readers are
cautioned that the information may not be appropriate for any other
purpose. Readers are cautioned that numerous factors could
potentially impact the Company's capital budget and production and
funds flow performance for 2015, including fluctuations in
commodity prices and the Company's planned non-core asset
disposition program.
FINANCIAL FLEXIBILITY
Penn West currently has a completely undrawn $1.7 billion credit facility. This facility is a
covenant based, not a reserves based, lending agreement, and
therefore is not directly impacted by the change in reserve values
resulting from movements in commodity prices. The covenants in the
credit facility have been aligned with the covenants in the
Company's senior notes. The main covenant in the senior notes is
the senior debt to EBITDA threshold of 3:1. The other significant
covenant is a senior debt to book capitalization limit of 50
percent, which is not impacted by the market capitalization of the
Company. As at September 30, 2014
these covenants were at 2.0 times and 23 percent respectively.
BUSINESS MODEL
Penn West remains committed to a growth plus income business model
and believes that it best suits the Company's asset base and
provides a competitive total return for our shareholders.
Supporting this model, management continues to strengthen and
expand its focus as the best in class operator in all of its core
plays as well as relentlessly driving efficiencies and cost control
across all of its operations.
About Penn West
Penn West is one of the largest conventional oil and natural gas
producers in Canada. Our goal is
to be the company that redefines oil and gas excellence in western
Canada. Based in Calgary, Alberta, Penn West operates a
significant portfolio of opportunities with a dominant position in
light oil in Canada on a land base
encompassing approximately five million acres.
Penn West shares are listed on the Toronto Stock Exchange under the
symbol PWT and on the New York Stock Exchange under the symbol PWE.
All dollar amounts herein are in Canadian Dollars.
Oil and Gas Information Advisory
Barrels of oil equivalent ("boe") may be misleading, particularly
if used in isolation. A boe conversion ratio of six thousand cubic
feet of natural gas to one barrel of crude oil is based on an
energy equivalency conversion method primarily applicable at the
burner tip and does not represent a value equivalency at the
wellhead. Given that the value ratio based on the current price of
crude oil as compared to natural gas is significantly different
from the energy equivalency conversion ratio of 6:1, utilizing a
conversion on a 6:1 basis may be misleading as an indication of
value.
Non-GAAP Measures Advisory
This news release includes non-GAAP measures not defined under
International Financial Reporting Standards ("IFRS") including
funds flow. Non-GAAP measures do not have any standardized meaning
prescribed by GAAP and therefore may not be comparable to similar
measures presented by other issuers. Funds flow is cash flow from
operating activities before changes in non-cash working capital and
decommissioning expenditures. Funds flow is used to assess our
ability to fund dividends and planned capital programs. For
additional information relating to this non-GAAP measure, including
a reconciliation of our funds flow to our cash flow from operating
activities, see our latest management's discussion and analysis
which is available in Canada at
www.sedar.com and in the United
States at www.sec.gov.
Forward-Looking Information Advisory
Certain statements contained in this document constitute
forward-looking statements or information (collectively
"forward-looking statements") within the meaning of the "safe
harbour" provisions of applicable securities legislation. In
particular, this document contains forward-looking statements
pertaining to, without limitation, the following: our intention to
reduce our 2015 dividend by approximately $160 million commencing with the 2015 first
quarter dividend payment payable on April
15, 2015; our adjusted 2015 capital budget of $625 million; our intention to reduce our
quarterly dividend commencing in the first quarter of 2015 to
$0.03 per share from $0.14 per share; our belief that our business
model assumes a conservative long run commodity price; our
expectation that we would reduce capital rather than increase
production into a declining commodity cycle, focusing on
profitability not production; our belief that we have the advantage
of being able to adjust our spending profile across a diverse
portfolio of assets to maximize our returns and focus on higher
cash returning assets in a declining commodity price environment;
our belief that we have a number of other means available to
protect our long-term sustainability in the event that low
commodity prices persist; our belief that our resources are secure,
our operational performance demonstrated, our future intact; the
suspension of the DRIP commencing with our first quarter 2015
dividend payable on April 15, 2015
and our intention that the DRIP will continue in effect for the
fourth quarter 2014 dividend payment of $0.14 per share to be paid on January 15, 2015 to shareholders of record on
December 31, 2014; our expectation
that our $625 million capital budget
will be allocated primarily toward development activities in the
Cardium and Viking core light oil areas; the Company's production
guidance for 2015 of 90,000 - 100,000 boe per day; our belief that
the decision to suspend production of approximately 2,000 boe per
day will actually increase funds flow by approximately $20 million; our belief that our business can be
successful in a lower commodity price environment; our intention in
2015 to continue to drive costs down and our expectation that
service costs will come down significantly reflecting the impact of
the lower crude oil prices; our 2015 funds flow forecast of
$500 to $550 million; our commitment
to a growth plus income business model and our belief that such
business model best suits our asset base and provides a competitive
total return for our shareholders; and management's intention to
continue to strengthen and expand its focus as the best in class
operator in all of its core plays as well as relentlessly drive
efficiencies and cost control across all of our operations.
With respect to forward-looking statements contained in this
document, we have made assumptions regarding, among other things:
2015 prices of C$65.00 per barrel of
Canadian light sweet oil, C$3.25 per
mcf AECO, and a C$/US$ foreign exchange rate of $1.15; that we do not dispose of additional
material producing properties; the disposition of certain assets
under our ongoing non-producing asset disposition program and the
proceeds therefrom; that the current commodity price and foreign
exchange environment will continue or improve; future capital
expenditure levels; future crude oil, natural gas liquids and
natural gas prices and differentials between light, medium and
heavy oil prices and Canadian, WTI and world oil and natural gas
prices; future crude oil, natural gas liquids and natural gas
production levels; future exchange rates and interest rates; future
debt levels; the amount of future cash dividends that we intend to
pay; and the continued suspension of our DRIP.
Although we believe that the expectations reflected in the
forward-looking statements contained in this document, and the
assumptions on which such forward-looking statements are made, are
reasonable, there can be no assurance that such expectations will
prove to be correct. Readers are cautioned not to place undue
reliance on forward-looking statements included in this document,
as there can be no assurance that the plans, intentions or
expectations upon which the forward-looking statements are based
will occur. By their nature, forward-looking statements involve
numerous assumptions, known and unknown risks and uncertainties
that contribute to the possibility that the forward-looking
statements contained herein will not be correct, which may cause
our actual performance and financial results in future periods to
differ materially from any estimates or projections of future
performance or results expressed or implied by such forward-looking
statements. These risks and uncertainties include, among other
things: the possibility that we will not be able to successfully
execute our long-term plan in part or in full, and the possibility
that some or all of the benefits that we anticipate will accrue to
our Company and our securityholders as a result of the successful
execution of such plan do not materialize; the possibility that we
are unable to execute some or all of our ongoing non-producing
asset disposition program on favourable terms or at all; general
economic and political conditions in Canada, the U.S. and globally, and in
particular, the effect that those conditions have on commodity
prices and our access to capital; industry conditions, including
fluctuations in the price of crude oil, natural gas liquids and
natural gas, price differentials for crude oil and natural gas
produced in Canada as compared to
other markets, and transportation restrictions, including pipeline
and railway capacity constraints; fluctuations in foreign exchange
or interest rates; unanticipated operating events or environmental
events that can reduce production or cause production to be shut-in
or delayed (including extreme cold during winter months, wild fires
and flooding); and the other factors described under "Risk Factors"
in our Revised Annual Information Form and described in our public
filings, available in Canada at
www.sedar.com and in the United
States at www.sec.gov. Readers are cautioned that this list
of risk factors should not be construed as exhaustive. The
forward-looking statements contained in this document speak only as
of the date of this document. Except as expressly required by
applicable securities laws, we do not undertake any obligation to
publicly update any forward-looking statements. The forward-looking
statements contained in this document are expressly qualified by
this cautionary statement.
SOURCE Penn West