CALGARY,
July 30, 2015 /CNW/ - PENN WEST
PETROLEUM LTD. (TSX - PWT; NYSE - PWE) ("Penn West", the
"Company", "we", "us" or "our") is
pleased to announce its financial and operational results for the
second quarter ended June 30, 2015
and 2015 guidance update. All figures are in Canadian dollars
unless otherwise stated.
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Three months ended June 30 |
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Six months ended June 30 |
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2015 |
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2014 |
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% change |
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2015 |
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2014 |
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% change |
Financial
(millions, except per share amounts) |
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Gross revenues
(1,2) |
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$ |
360 |
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$ |
656 |
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(45) |
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$ |
700 |
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$ |
1,329 |
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(47) |
Funds flow from
operations (2) |
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79 |
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299 |
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(74) |
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151 |
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568 |
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(73) |
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Basic per share
(2) |
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0.16 |
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0.61 |
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(74) |
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0.30 |
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1.15 |
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(74) |
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Diluted per share
(2) |
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0.16 |
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0.61 |
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(74) |
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0.30 |
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1.15 |
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(74) |
Funds flow
(2) |
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47 |
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298 |
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(84) |
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159 |
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567 |
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(72) |
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Basic per share
(2) |
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0.09 |
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0.61 |
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(85) |
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0.32 |
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1.15 |
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(72) |
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Diluted per share
(2) |
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0.09 |
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0.60 |
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(85) |
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0.32 |
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1.15 |
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(72) |
Net income (loss) |
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(28) |
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143 |
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>(100) |
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(276) |
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54 |
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>(100) |
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Basic per share |
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(0.06) |
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0.29 |
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>(100) |
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(0.55) |
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0.11 |
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>(100) |
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Diluted per share |
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(0.06) |
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0.29 |
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>(100) |
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(0.55) |
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0.11 |
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>(100) |
Development capital
expenditures (3) |
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64 |
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65 |
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(2) |
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255 |
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260 |
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(2) |
Long-term debt at
period-end |
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$ |
2,206 |
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$ |
2,234 |
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(1) |
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$ |
2,206 |
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$ |
2,234 |
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(1) |
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Dividends
(millions) |
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Dividends paid
(4) |
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$ |
5 |
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$ |
69 |
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(93) |
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$ |
75 |
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$ |
137 |
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(45) |
DRIP |
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- |
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(15) |
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(100) |
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(10) |
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(29) |
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(66) |
Dividends paid in
cash |
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$ |
5 |
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$ |
54 |
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(91) |
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$ |
65 |
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$ |
108 |
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(40) |
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Operations |
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Daily production
(average) |
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Light oil and NGL (bbls/d) |
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51,275 |
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55,783 |
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(8) |
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51,859 |
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57,144 |
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(9) |
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Heavy oil (bbls/d) |
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11,947 |
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13,625 |
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(12) |
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12,418 |
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13,373 |
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(7) |
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Natural gas (mmcf/d) |
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168 |
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224 |
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(25) |
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172 |
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231 |
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(26) |
Total production
(boe/d) (5) |
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91,164 |
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106,706 |
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(15) |
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93,024 |
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109,070 |
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(15) |
Average sales
price |
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Light oil and NGL (per bbl) |
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$ |
58.05 |
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$ |
95.22 |
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(39) |
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$ |
52.05 |
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$ |
93.93 |
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(45) |
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Heavy oil (per bbl) |
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46.44 |
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79.55 |
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(42) |
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38.06 |
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74.59 |
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(49) |
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Natural gas (per mcf) |
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$ |
2.78 |
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$ |
4.96 |
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(44) |
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$ |
2.93 |
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$ |
5.37 |
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(45) |
Netback per boe |
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Sales price |
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$ |
43.84 |
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$ |
70.34 |
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(38) |
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$ |
39.53 |
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$ |
69.74 |
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(43) |
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Commodity gain (loss) |
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(0.49) |
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(3.05) |
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(84) |
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1.51 |
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(2.51) |
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>(100) |
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Net sales price |
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43.35 |
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67.29 |
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(36) |
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41.04 |
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67.23 |
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(39) |
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Royalties |
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(4.72) |
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(11.54) |
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(59) |
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(4.51) |
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(10.82) |
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(58) |
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Transportation |
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(1.40) |
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(1.18) |
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19 |
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(1.37) |
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(1.18) |
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16 |
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Operating expenses |
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(18.51) |
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(15.20) |
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22 |
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(18.74) |
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(17.82) |
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5 |
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Netback (2) |
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$ |
18.72 |
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$ |
39.37 |
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(52) |
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$ |
16.42 |
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$ |
37.41 |
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(56) |
(1) |
Gross revenues include realized gains and losses on commodity
contracts. |
(2) |
The terms "gross revenues", "funds flow", "funds flow from
operations" and their applicable per share amounts, and "netback"
are non-GAAP measures. Please refer to the "Calculation of Funds
Flow/ Funds Flow From Operations" and "Non-GAAP Measures" sections
below. |
(3) |
Includes capital carried by partners. |
(4) |
Includes dividends paid in cash that are subsequently
reinvested to purchase shares from treasury under the dividend
reinvestment plan. |
(5) |
Please refer to the "Oil and Gas Information Advisory" section
below for information regarding the term "boe". |
PRESIDENT'S MESSAGE
Strong operational performance and improvements
to our financial position in the second quarter continued to
advance our long-term strategy of light oil growth and balance
sheet strength.
Production of 91,164 boe per day was within our
expected guidance range and was 69 percent liquids weighted. To
provide increased transparency into performance of funds flow
generated directly from our operations we have adopted a "funds
flow from operations" metric. This metric does not include the
impact of both foreign exchange hedge monetizations and realized
gains/losses from foreign currency debt prepayments and maturities.
We expect that this metric will be more comparable on a
quarter-over-quarter basis and will demonstrate the consistent
delivery of our operating performance. The Company's funds flow
from operations was $79 million
($0.16 per share - basic) for the
second quarter, which was slightly above $72
million ($0.14 per share -
basic) in the first quarter of 2015.
During the quarter, we finalized amending
agreements with our lenders, which included modifications to our
financial covenants, further increasing our financial flexibility
and clearing the way for us to proceed with our development plans
in the second half of 2015. As part of these amending agreements,
we will offer the net proceeds from asset dispositions to prepay
outstanding principal amounts owing to noteholders and to repay
outstanding amounts under our syndicated bank facility on a pro
rata basis until March 30, 2017 or
when $650 million has been prepaid to
noteholders. As at June 30,
2015, the Company was in compliance with all financial
covenants under its lending agreements, principally, its Senior
Debt to EBITDA ratio was 3.2 times, relative to a 5.0 times
limit.
We also closed several non-core divestitures
during the quarter for total proceeds of approximately $414 million, all of which have been or will be
applied to debt repayment as outlined above. We are moving forward
on additional non-core asset sales in an effort to further reduce
debt and strengthen our balance sheet. We remain confident in our
ability to transact on asset dispositions despite the current
commodity price environment. As we continue to execute on the
long-term strategy for Penn West, these transactions make the
enterprise more focused and competitive.
Operationally, we executed the second quarter as
planned and focused primarily on completion activities in the
Cardium and Viking programs. The unseasonably warm and dry
conditions allowed us to get an early start on preparations for our
second half 2015 programs. Those same dry conditions, however, also
contributed to an early and active forest fire period in certain
operating areas which we were able to mitigate. Additionally, there
were some volumes offline due to third party pipeline outages
during the quarter.
While we continue to witness significant
volatility in the commodity and foreign exchange markets, our
realized prices remain fairly resilient. The weakening of the
Canadian dollar, combined with narrowing differentials between
Canadian realized prices and WTI, has helped mitigate the impact of
weakening benchmark crude prices. We have also experienced
increased stability in our revenues through our ongoing hedging
program.
Additionally, we took advantage of the slowdown
in activity during breakup to re-evaluate our asset portfolio and
second half capital program in the context of lower commodity
prices. Our updated evaluations show that Penn West's economics on
new wells in the Cardium and Viking remain profitable and very
competitive with our peers. We believe the best economic decision
is to maintain the majority of our second half drilling program,
although we are mindful of the recent crude oil price weakness and
will act accordingly should these lower prices persist.
FINANCIAL AND OPERATIONAL HIGHLIGHTS
- Production in the second quarter was within guidance and
averaged 91,164 boe per day. In the quarter, volumes were
reduced by approximately 1,000 boe per day by the divestiture of
certain non-core assets and by approximately 2,000 boe per day from
the voluntarily shut-in of volumes for economic reasons.
- To increase the transparency and comparability of funds flow,
Penn West has introduced funds flow from operations, which excludes
certain non-recurring and non-operationally related funds flow
items. For further details, please refer to the Calculation of
Funds Flow/Funds Flow From Operations below.
- Funds flow from operations, which excludes foreign exchange
hedge monetizations/settlements and realized debt foreign exchange
losses, was $79 million ($0.16 per share) compared to $299 million ($0.61
per share - basic) in the comparative period in 2014. The decrease
is primarily attributed to lower revenues due to declines in
commodity prices and lower production volumes as a result of
non-core asset disposition activity.
- Funds flow for the second quarter was $47 million ($0.09
per share - basic) compared to $298
million ($0.61 per share -
basic) in the comparative period in 2014. The decrease is
consistent with the reasons noted in funds flow from operations
above plus realized foreign exchange losses on debt prepayments and
maturities in the quarter.
- Development capital expenditures were $64 million during the second quarter of 2015
compared to $65 million in the second
quarter of 2014. The Company's development program was focused on
completion work within the Cardium and Viking plays as overall
activity levels were lower than the first quarter of 2015 due to
spring break-up.
- During the second quarter, Penn West closed several non-core
divestitures for total proceeds of approximately $414 million, all of which have been or will be
applied to debt repayment.
- As part of our on-going program to protect funds flow, Penn
West layered in several additional crude oil hedges during and
subsequent to the second quarter. Accordingly, the Company
currently has crude oil hedges in place as follows:
Notional
Volumes
(bbls/d) |
Contract
Term |
Pricing
(C$ WTI/bbl) |
12,500 |
Q3/15 |
70.40 |
12,500 |
Q4/15 |
72.57 |
9,500 |
Q1/16 |
72.83 |
6,000 |
Q2/16 |
71.94 |
5,000 |
Q3/16 |
72.08 |
5,000 |
Q4/16 |
72.08 |
Note: 7,500 barrels of the hedges for Q3/15 are
contracted in USD at $52.00 per
barrel and converted at an FX rate of C$/US$
1.30.
OUTLOOK AND REVISED 2015 GUIDANCE
In December 2014,
when Penn West last updated its 2015 capital budget, the forward
strip for crude oil was in the range of the Company's Canadian per
barrel pricing assumption of C$65.00.
Since that time, crude oil prices have declined. Accordingly, the
Company has reduced its Canadian crude oil pricing assumption for
full year 2015 to C$60.00 per barrel,
which is approximately equivalent to US$50.00 per barrel WTI adjusting for foreign
exchange and transportation differentials. Consequently, the
Company is updating its funds flow from operations guidance range
from $500 - $550 million to
$350 - $400 million. The
decrease in funds flow from operations guidance is largely
attributed to lower benchmark oil and natural gas prices, although
continued weakness in NGL realizations in the second half of 2015
could have a further impact on reported funds flow from
operations. Additionally, the capital budget has been reduced
from $625 million to $575 million as a result of a deferral of certain
projects and reduced cost estimates.
Table 1: Summary of Changes to 2015 Capital
Budget and Assumptions
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Nov 17, 2014
Budget |
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Dec 17, 2014
Revision |
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Jul 29, 2015
Revision |
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Change
From Dec |
Canadian Light Sweet
Crude Oil Assumption (C$/bbl) |
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$86.50 |
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$65.00 |
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$60.00 |
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-7.7% |
AECO Natural Gas Assumption (C$/mcf) |
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$3.69 |
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$3.25 |
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$3.25 |
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nil |
C$/US$ Foreign Exchange Assumption |
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$1.04 |
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$1.15 |
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$1.25 |
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8.7% |
Production (Boe/d) |
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95,000 - 105,000 |
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90,000 - 100,000 |
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90,000 - 100,000 |
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nil |
Capital Budget (MM) |
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$840 |
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$625 |
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$575 |
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-8.0% |
Funds Flow From Operations(MM) |
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$875 - $925 |
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$500 - $550 |
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$350 - $400 |
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-28.6% |
For sensitivities to key drivers of the
Company's business please refer to page 17 of the associated
MD&A for the three and six months ended June 30, 2015.
This outlook section is included to provide
shareholders with information about Penn West's expectations as at
July 29, 2015 for production, funds
flow from operations and capital expenditures in 2015 and readers
are cautioned that the information may not be appropriate for any
other purpose. This information constitutes forward-looking
information. Readers should note the assumptions, risks and
discussion under "Forward-Looking Statements" and are cautioned
that numerous factors could potentially impact Penn West's capital
expenditure levels and production and funds flow from operations
performance for 2015, including fluctuations in commodity prices
and its ongoing asset disposition program.
Long-Term debt
- As at June 30, 2015, the Company
was in compliance with all financial covenants under its lending
agreements and it had approximately $700
million of undrawn capacity under its syndicated bank
facility of $1.2 billion. Senior Debt
to EBITDA was 3.2 times, relative to a 5.0 times limit.
- In May 2015, Penn West announced
the finalization of amending agreements with its lenders. The
amended covenants require Penn West to remain below 5.0 times
Senior Debt to EBITDA until June 30,
2016, below 4.5 times from July 1,
2016 to September 30, 2016 and
below 4.0 times from October 1, 2016
to December 31, 2016. Thereafter,
Penn West's Senior Debt to EBITDA debt covenant returns to 3.0
times.
- Pursuant to the terms of the amending agreements with its
banking syndicate and noteholders, in the event that Penn West
completes any asset dispositions prior to March 30, 2017, it has committed to use the net
proceeds from such asset dispositions to offer to prepay at par not
less than $650 million of the
outstanding principal amounts owing to noteholders (subject to
noteholder acceptance), with corresponding pro rata amounts from
such asset dispositions to be used to repay any outstanding amounts
drawn under its syndicated bank facility. During the second
quarter, a total of $316 million was
prepaid under this provision, including $278
million in senior notes at par and $38 million on the syndicated bank facility.
- During the second quarter US$165
million of senior notes matured and were repaid utilizing
the company's syndicated bank facility.
- Subsequent to the end of the second quarter, $98 million from the most recently completed
divestments was offered and accepted by lenders for further
prepayment of outstanding notes and repayment of indebtedness on
our syndicated bank facility on a pro rata basis. The pro rata
syndicated bank facility allocation of $17
million was repaid in early July. We expect the allocated
noteholders amount to be paid on August 7,
2015. In anticipation of this noteholder settlement, the
Company entered into foreign exchange forward contracts on
US$70 million to fix the offered
amounts related to the US denominated notes expected to be prepaid
in early August.
OPERATED DEVELOPMENT ACTIVITY
During the second quarter, Penn West performed a
review of its remaining capital plans for 2015. The analysis
reaffirmed that Penn West's assets are able to deliver strong
economic returns in the current commodity price environment and
supports continued development of its core plays in the Cardium and
Viking, which remain profitable on a full cycle basis.
The Company continues to realize reductions in
well and infrastructure costs due to both innovation in well
designs and cost compression in the service industry. In the
Cardium and Viking, recently drilled wells are expected to offer
cost reductions of approximately 15 to 30 percent relative to a
year ago. These cost savings help offset the impact of commodity
price declines and are a key factor in the Company's decision to
continue investment.
At the end of the second quarter, Penn West had
three rigs active with the expectation of adding four more rigs
throughout the third quarter.
Table 2: Second Quarter 2015 Core Area Light Oil Development
Summary
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Number of Wells |
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Drilled |
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Completed |
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On
production |
Business Unit |
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Gross |
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Net |
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Gross |
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Net |
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Gross |
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Net |
Cardium |
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0.0 |
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0.0 |
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7.0 |
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6.7 |
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14.0 |
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13.7 |
Viking |
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8.0 |
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8.0 |
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9.0 |
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9.0 |
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9.0 |
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9.0 |
Slave Point |
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0.0 |
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0.0 |
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0.0 |
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0.0 |
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0.0 |
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0.0 |
Total |
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8.0 |
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8.0 |
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16.0 |
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15.7 |
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23.0 |
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22.7 |
PLAY UPDATES
Cardium
In the quarter, the teams completed seven (6.7
net) wells and brought 14 (13.7 net) wells on production in the
Cardium. Activity was evenly split between Willesden Green in the
south and Pembina in the north ends of the play. In the first half
of 2015, total well costs were reduced by over 20 percent at
Pembina Cardium Unit ("PCU") #9, J-Lease and Easyford. As the
second quarter is a light operational period because of the
interruption caused by spring break-up conditions, we expect to
report current cost performance in our core areas, including the
Cardium, with our third quarter results.
Cardium well results as a whole remain generally
in-line with internal expectations despite variances between
individual wells or groups of wells. Development in the Pembina
region was focused in the J-Lease and PCU #9 areas during the first
half of the year. Current performance in J-Lease wells continue to
exceed expectations while limited regions of lower pressure in PCU
#9 are modestly affecting the performance of certain wells. In
Willesden Green, production performance on recently drilled wells
has exceeded our internal expectations as we continue to further
the Company's understanding of the reservoir pressure regimes in
the area.
The Cardium development teams initiated post
break-up activity with one rig started in late June and have since
added four rigs for a total of five rigs currently operating (one
in J-Lease, one in PCU #9, one in PCU #11 and two in Willesden
Green). After reviewing regional results on wells utilizing a
sliding sleeve design, Penn West intends to pursue a cemented liner
pilot in the PCU #9 in the third quarter of 2015. The cemented
liner system design is expected to increase production control and
subsequent water injection to improve waterflood performance over
time, which in turn is expected to improve overall project
economics. As referenced above, the Cardium team's second half 2015
drilling plans include drilling and bringing six PCU #11 wells on
production later this year. This is an emerging area for Penn West
with the potential to expand the Company's inventory in an area
that has not seen much development activity over the past several
years.
Viking
In the Viking, the Company drilled eight (8.0
net) wells, completed nine (9.0 net) wells and brought nine (9.0
net) wells on production. Due to dry spring conditions the teams
were able to accelerate planned second quarter completions and
tie-ins. Planned maintenance downtime was also shifted from the
second quarter into the second half of the year. As a result of
these events, Viking production is up meaningfully relative to
internal estimates. In addition, work on key waterflood
infrastructure in the Dodsland
area was completed and the teams commenced water injection in the
second quarter.
Over the first half of 2015, Penn West has
improved per well costs in part by transitioning our completions to
a 12 stage, 12 ton technique from the previous 15 stage, 15 ton
design. This innovation has resulted in per well savings of
approximately $100,000 resulting in
drilling and completion costs of approximately $700,000 per well and is expected to further
improve the Company's economics in areas that have seen meaningful
recovery to date, despite the potential for slightly lower initial
production rates. In the first half of 2015, the Company lowered
its drilling and completion costs by over 15 percent from the
second half of 2014.
In the Company's second half 2015 program, the
teams will be drilling several wells with longer horizontal
sections in order to produce from reservoir beneath areas with
surface access restrictions. While this will reduce the
number of wells drilled, the expectation is to maintain overall
economics and production rates.
Peace River Oil Partnership ("PROP")
In collaboration with its partner, the Company
has finalized the budget for the second half 2015 and first half
2016 development program in the area. Management is pleased to have
the full support of its partner allowing for development to be
accelerated in the play through the addition of a second rig to the
program. The second rig is planned to start in September and carry
through to the end of the year. Approximately 90 percent of the
Company's expenditures continue to be paid for by our partner in
the PROP joint venture.
Slave Point
The Company suspended development activities in
Slave Point at the beginning of the year based on its adjusted 2015
capital budget announced in December of 2014. As part of the
comprehensive portfolio review over the quarter, the Company
continues to believe that while Slave Point economics are above
break-even on a half-cycle basis, the full-cycle economics are not
yet competitive with many of its opportunities in other core areas,
especially in the context of a constrained capital environment.
Active evaluation of the play will continue with a focus on cost
reductions and expect investment to resume when expected returns
are competitive with other internal opportunities.
Other Opportunities
As part of Penn West's ongoing efforts to
control spending and reduce exploratory risk, while maximizing the
value of its large asset base, the Company continues to actively
pursue farm-out opportunities in non-core development areas. In the
first half of 2015, 5.3 net wells were spud on Penn West farm-out
lands. We anticipate to have an additional 13 net wells spud in the
second half of the year.
DRILLING STATISTICS
|
|
|
Three
months ended
June 30 |
|
|
Six months
ended
June 30 |
|
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
Gross |
|
|
Net |
|
|
Gross |
|
|
Net |
|
|
Gross |
|
|
Net |
|
|
Gross |
|
|
Net |
Oil |
|
|
9 |
|
|
8 |
|
|
11 |
|
|
10 |
|
|
84 |
|
|
76 |
|
|
77 |
|
|
57 |
Stratigraphic and service |
|
|
- |
|
|
- |
|
|
2 |
|
|
- |
|
|
1 |
|
|
1 |
|
|
4 |
|
|
1 |
Total |
|
|
9 |
|
|
8 |
|
|
13 |
|
|
10 |
|
|
85 |
|
|
77 |
|
|
81 |
|
|
58 |
Success rate (1) |
|
|
|
|
|
100% |
|
|
|
|
|
100% |
|
|
|
|
|
100% |
|
|
|
|
|
100% |
(1) |
Success rate is calculated excluding stratigraphic and service
wells.
|
CAPITAL EXPENDITURES
|
|
|
Three
months ended
June 30 |
|
|
Six months
ended
June 30 |
(millions) |
|
|
2015 |
|
|
2014 |
|
|
%
change |
|
|
2015 |
|
|
2014 |
|
|
%
change |
Land acquisition and
retention |
|
|
$ |
1 |
|
|
$ |
- |
|
|
100 |
|
|
$ |
1 |
|
|
$ |
1 |
|
|
- |
Drilling and completions |
|
|
|
34 |
|
|
|
31 |
|
|
10 |
|
|
|
163 |
|
|
|
173 |
|
|
(6) |
Facilities and well equipping |
|
|
|
31 |
|
|
|
30 |
|
|
3 |
|
|
|
91 |
|
|
|
83 |
|
|
10 |
Geological and geophysical |
|
|
|
- |
|
|
|
1 |
|
|
(100) |
|
|
|
2 |
|
|
|
7 |
|
|
(71) |
Corporate |
|
|
|
1 |
|
|
|
3 |
|
|
(67) |
|
|
|
4 |
|
|
|
3 |
|
|
33 |
Capital carried by partners |
|
|
|
(3) |
|
|
|
- |
|
|
>(100) |
|
|
|
(6) |
|
|
|
(7) |
|
|
(14) |
Exploration and development
capital (1) |
|
|
|
64 |
|
|
|
65 |
|
|
(2) |
|
|
|
255 |
|
|
|
260 |
|
|
(2) |
Property dispositions, net |
|
|
|
(411) |
|
|
|
(1) |
|
|
>100 |
|
|
|
(412) |
|
|
|
(212) |
|
|
94 |
Total capital expenditures |
|
|
$ |
(347) |
|
|
$ |
64 |
|
|
>(100) |
|
|
$ |
(157) |
|
|
$ |
48 |
|
|
>(100) |
(1) |
Exploration and development capital includes costs related to
Property, Plant and Equipment and Exploration and Evaluation
activities.
|
LAND
|
As at June
30 |
|
Producing |
|
|
|
|
|
Non-producing |
|
|
|
|
|
|
2015 |
|
|
2014 |
|
|
%
change |
|
|
2015 |
|
|
2014 |
|
|
%
change |
Gross acres (000s) |
|
|
3,900 |
|
|
4,322 |
|
|
(10) |
|
|
2,296 |
|
|
2,636 |
|
|
(13) |
Net acres (000s) |
|
|
2,693 |
|
|
2,949 |
|
|
(9) |
|
|
1,583 |
|
|
1,808 |
|
|
(12) |
Average working interest |
|
|
69% |
|
|
68% |
|
|
1 |
|
|
69% |
|
|
69% |
|
|
- |
COMMON SHARE DATA
|
|
|
Three months ended June 30 |
|
|
Six months ended June 30 |
(millions of
shares) |
|
|
2015 |
|
|
2014 |
|
|
%
change |
|
|
2015 |
|
|
2014 |
|
|
%
change |
Weighted average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
502.2 |
|
|
492.4 |
|
|
2 |
|
|
501.8 |
|
|
491.4 |
|
|
2 |
|
Diluted |
|
|
502.2 |
|
|
492.6 |
|
|
2 |
|
|
501.8 |
|
|
491.4 |
|
|
2 |
Outstanding as at June
30 |
|
|
|
|
|
|
|
|
|
|
|
502.2 |
|
|
493.5 |
|
|
2 |
Non-GAAP Measures
This news release includes non-GAAP measures not
defined under International Financial Reporting Standards ("IFRS")
including funds flow, funds flow from operations, funds flow per
share-basic, funds flow per share-diluted, funds flow from
operations per share-basic, funds flow from operations per
share-diluted, netback and gross revenues. 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 and funds flow from operations are used to assess the
Company's ability to fund dividend and planned capital programs.
Funds flow from operations excludes the effects of financing
related transactions from foreign exchange contracts and debt
repayments/ pre-payments and is more representative of cash related
to continuing operations. See "Calculation of Funds Flow/Funds Flow
From Operations" below for a reconciliation of funds flow to its
nearest measure prescribed by IFRS. Netback is the per unit of
production amount of revenue less royalties, operating expenses,
transportation and realized risk management gains and losses, and
is used in capital allocation decisions and to economically rank
projects. Gross revenue is total revenues including realized risk
management gains and losses on commodity contracts and is used to
assess the cash realizations on commodity sales.
Calculation of Funds Flow/Funds Flow From
Operations
|
|
|
Three months ended
June 30 |
|
|
Six months ended
June 30 |
(millions, except per share
amounts) |
|
|
|
2015 |
|
|
|
2014 |
|
|
|
2015 |
|
|
|
2014 |
Cash flow from
operating activities |
|
|
$ |
(67) |
|
|
$ |
214 |
|
|
$ |
89 |
|
|
$ |
436 |
Change in non-cash
working capital |
|
|
|
109 |
|
|
|
77 |
|
|
|
54 |
|
|
|
111 |
Decommissioning
expenditures |
|
|
|
5 |
|
|
|
7 |
|
|
|
16 |
|
|
|
20 |
Funds flow |
|
|
|
47 |
|
|
|
298 |
|
|
|
159 |
|
|
|
567 |
Monetization of foreign exchange contracts |
|
|
|
(19) |
|
|
|
- |
|
|
|
(63) |
|
|
|
- |
Settlements of normal course FX contracts |
|
|
|
(23) |
|
|
|
(2) |
|
|
|
(25) |
|
|
|
(2) |
Realized foreign exchange loss - debt
repayments |
|
|
|
44 |
|
|
|
- |
|
|
|
44 |
|
|
|
- |
Realized foreign exchange loss - debt
maturities |
|
|
|
30 |
|
|
|
3 |
|
|
|
36 |
|
|
|
3 |
Funds flow from
operations |
|
|
$ |
79 |
|
|
$ |
299 |
|
|
$ |
151 |
|
|
$ |
568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share - funds
flow |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic per share |
|
|
$ |
0.09 |
|
|
$ |
0.61 |
|
|
$ |
0.32 |
|
|
$ |
1.15 |
|
Diluted per share |
|
|
|
0.09 |
|
|
|
0.60 |
|
|
|
0.32 |
|
|
|
1.15 |
Per share - funds flow
from operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic per share |
|
|
|
0.16 |
|
|
|
0.61 |
|
|
|
0.30 |
|
|
|
1.15 |
|
Diluted per share |
|
|
$ |
0.16 |
|
|
$ |
0.61 |
|
|
$ |
0.30 |
|
|
$ |
1.15 |
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 is misleading
as an indication of value.
Forward-Looking Statements
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.
Forward-looking statements are typically identified by words such
as "anticipate", "continue", "estimate", "expect", "forecast",
"budget", "may", "will", "project", "could", "plan", "intend",
"should", "believe", "outlook", "objective", "aim", "potential",
"target" and similar words suggesting future events or future
performance. In addition, statements relating to "reserves" or
"resources" are deemed to be forward-looking statements as they
involve the implied assessment, based on certain estimates and
assumptions, that the reserves and resources described exist in the
quantities predicted or estimated and can be profitably produced in
the future. In particular, this document contains forward-looking
statements pertaining to, without limitation, the following: under
"President's Message", that funds flow from operations metric will
be more comparable on a quarter-over-quarter basis and will
demonstrate the consistent delivery of our operating performance,
that finalizing the amending agreements with our lenders improves
our financial flexibility which in turn will clear the way for our
development plans in the second half of 2015, that pursuant to the
amending agreements, the net proceeds from asset dispositions will
be used to prepay outstanding principal amounts owing to the
noteholders, and to repay outstanding amounts under our syndicated
bank facility, on a pro rata basis until March 31, 2017 or when $650 million has been paid to noteholders, that
in connection with the closing of several non-core divestitures
during the quarter for total proceeds of approximately $414 million, these proceeds have been or will be
applied to debt repayment, the continued moving forward by the
Company on additional non-core asset sales in an effort to reduce
debt and strengthen our balance sheet, the confidence in our
ability to transact on asset dispositions despite the current
commodity price environment, the increased stability in our
revenues through the ongoing hedging program, continuing to execute
on the long-term strategy which will make the enterprise as a whole
more focused and competitive, that the best economic decision for
the business is to maintain the majority of our second half
drilling program and our ability to act accordingly in the future
should lower crude oil prices persist; under "Outlook and Revised
2015 Capital Budget", the revised guidance amounts for the Canadian
crude oil pricing assumptions for the full year 2015, the 2015
funds flow from operations and 2015 capital budget; under
"Long-Term Debt", pursuant to asset dispositions, the commitment to
repay at par up to $650 million of
the outstanding principal amount owing to noteholders (subject to
noteholder acceptance), with corresponding pro rata amounts from
such asset dispositions to be used to repay any outstanding amounts
drawn under the syndicated bank facility in the event any assets
dispositions occur prior to March 31,
2017, the use of proceeds from the recent divestiture to
noteholders on August 7, 2015 with
the use of exchange rate contracts to fix the offered amounts on
the US denominated notes; under "Operated Development Activity",
that the analysis on the Company's remaining capital plans for 2015
reaffirm that Penn West assets are able to deliver strong economic
returns in the current commodity price environment and continued
development of its core plays in the Cardium and Viking, which
remain profitable on a full cycle basis, that in the Cardium and
Viking, recently drilled wells are expected to offer cost
reductions of approximately 15 to 30 percent relative to a year ago
and the addition of four more rigs throughout the third quarter;
under "Play Updates", in the Cardium, the expectation to report
current cost performance in our core areas, including the Cardium,
with the third quarter results, the J-Lease will continue to exceed
expectations and limited regions of lower pressure in PCU #9 will
modestly affect the performance in certain wells, in Willesden
Green, recently drilled wells will continue to exceed expectations,
the intention to pursue a cemented liner pilot in the PCU #9 which
is expected to increase production control and subsequent water
injection to improve overall project economics, the bringing on of
six PCU #11 wells on production later this year, and the potential
expansion of inventory in the area; in the Viking, planned
maintenance time being shifted into the second half of 2015,
improvements to completions expected to further improve the
Company's economics in the area and the drilling of several wells
with longer horizontal sections in order to produce from surface
access restricted areas, maintaining overall economics and
production rates, despite there being fewer wells, because of these
longer horizontal sections; in PROP, that a second rig is planned
to start September and carry through to the end of the year; in
Slave Point, the expectation that investment will resume in the
area when expected returns are competitive with other internal
opportunities; in "Other Opportunities", the expectation for the
Company to have an addtional 13 net wells spud in the second half
of the year.
With respect to forward-looking statements
contained in this document, we have made assumptions regarding,
among other things: the terms and timing of asset sales to be
completed under our ongoing program to sell non-core assets; our
ability to execute our long-term plan as described herein and in
our other disclosure documents and the impact that the successful
execution of such plan will have on our Company and our
shareholders; the economic returns that we anticipate realizing
from expenditures made on our assets; 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 capital expenditure levels; future crude
oil, natural gas liquids and natural gas production levels;
drilling results; future exchange rates and interest rates; the
amount of future cash dividends that we intend to pay and the level
of participation in our dividend reinvestment plan; our ability to
execute our capital programs as planned without significant adverse
impacts from various factors beyond our control, including weather,
infrastructure access and delays in obtaining regulatory approvals
and third party consents; our ability to obtain equipment in a
timely manner to carry out development activities and the costs
thereof; our ability to market our oil and natural gas successfully
to current and new customers; our ability to obtain financing on
acceptable terms, including our ability to renew or replace our
syndicated bank facility and our ability to finance the repayment
of our senior unsecured notes on maturity; and our ability to add
production and reserves through our development and exploitation
activities. In addition, many of the forward-looking statements
contained in this document are located proximate to assumptions
that are specific to those forward-looking statements, and such
assumptions should be taken into account when reading such
forward-looking statements: see in particular the assumptions
identified under the heading "Outlook and Revised 2015 Capital
Budget"
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
predictions, forecasts, projections and other forward-looking
statements will not occur, 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 are unable to execute some or all of our
ongoing non-core asset disposition program on favourable terms or
at all, whether due to the failure to receive requisite regulatory
approvals or satisfy applicable closing conditions or for other
reasons that we cannot anticipate; the possibility that we breach
one or more of the financial covenants pursuant to our amending
agreements with the syndicated banks and the holders of our senior,
unsecured notes; 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
impact of weather conditions on seasonal demand; the impact of
weather conditions on our ability to execute capital programs; the
risk that we will be unable to execute our capital programs as
planned without significant adverse impacts from various factors
beyond our control, including weather, infrastructure access and
delays in obtaining regulatory approvals and third party consents;
risks inherent in oil and natural gas operations; uncertainties
associated with estimating reserves and resources; competition for,
among other things, capital, acquisitions of reserves, resources,
undeveloped lands and skilled personnel; incorrect assessments of
the value of acquisitions; geological, technical, drilling and
processing problems; general economic and political conditions in
Canada, the U.S. and globally;
industry conditions, including fluctuations in the price of oil 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; royalties payable in respect of
our oil and natural gas production and changes to government
royalty frameworks; changes in government regulation of the oil and
natural gas industry, including environmental regulation;
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; failure to
obtain regulatory, industry partner and other third-party consents
and approvals when required, including for acquisitions,
dispositions and mergers; failure to realize the anticipated
benefits of dispositions, acquisitions, joint ventures and
partnerships, including those discussed herein; changes in tax and
other laws that affect us and our securityholders; the potential
failure of counterparties to honour their contractual obligations;
stock market volatility and market valuations; OPEC's ability to
control production and balance global supply and demand of crude
oil at desired price levels; political uncertainty, including the
risks of hostilities, in the petroleum producing regions of the
world; and the other factors described in our public filings
(including our Annual Information Form) 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 or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise. The forward-looking statements
contained in this document are expressly qualified by this
cautionary statement.
Penn West Petroleum
Ltd. |
Consolidated Balance
Sheets |
|
|
|
|
|
|
|
|
|
|
|
|
|
(CAD millions,
unaudited) |
|
|
Note |
|
|
June 30, 2015 |
|
|
December 31,
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
Cash |
|
|
|
|
|
$ |
89 |
|
|
$ |
67 |
|
Accounts receivable |
|
|
|
|
|
|
197 |
|
|
|
182 |
|
Other |
|
|
|
|
|
|
57 |
|
|
|
46 |
|
Deferred funding assets |
|
|
3 |
|
|
|
69 |
|
|
|
84 |
|
Risk management |
|
|
8 |
|
|
|
6 |
|
|
|
31 |
|
|
|
|
|
|
|
418 |
|
|
|
410 |
Non-current |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred funding assets |
|
|
3 |
|
|
|
181 |
|
|
|
195 |
|
Exploration and evaluation
assets |
|
|
4 |
|
|
|
499 |
|
|
|
505 |
|
Property, plant and equipment |
|
|
5 |
|
|
|
7,512 |
|
|
|
7,906 |
|
Goodwill |
|
|
|
|
|
|
706 |
|
|
|
734 |
|
Risk management |
|
|
8 |
|
|
|
59 |
|
|
|
102 |
|
|
|
|
|
|
|
8,957 |
|
|
|
9,442 |
Total assets |
|
|
|
|
|
$ |
9,375 |
|
|
$ |
9,852 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and
Shareholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities |
|
|
|
|
|
$ |
337 |
|
|
$ |
529 |
|
Dividends payable |
|
|
|
|
|
|
5 |
|
|
|
70 |
|
Current portion of long-term
debt |
|
|
6 |
|
|
|
321 |
|
|
|
283 |
|
Decommissioning liability |
|
|
7 |
|
|
|
69 |
|
|
|
52 |
|
Risk management |
|
|
8 |
|
|
|
18 |
|
|
|
9 |
|
|
|
|
|
|
|
750 |
|
|
|
943 |
Non-current |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
6 |
|
|
|
1,885 |
|
|
|
1,866 |
|
Decommissioning liability |
|
|
7 |
|
|
|
500 |
|
|
|
533 |
|
Risk management |
|
|
8 |
|
|
|
8 |
|
|
|
10 |
|
Deferred tax liability |
|
|
11 |
|
|
|
920 |
|
|
|
914 |
|
Other non-current liabilities |
|
|
|
|
|
|
4 |
|
|
|
4 |
|
|
|
|
|
|
|
4,067 |
|
|
|
4,270 |
Shareholders'
equity |
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders' capital |
|
|
9 |
|
|
|
8,993 |
|
|
|
8,983 |
|
Other reserves |
|
|
|
|
|
|
91 |
|
|
|
89 |
|
Deficit |
|
|
|
|
|
|
(3,776) |
|
|
|
(3,490) |
|
|
|
|
|
|
|
5,308 |
|
|
|
5,582 |
|
Total liabilities and
shareholders' equity |
|
|
|
|
|
$ |
9,375 |
|
|
$ |
9,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent events (Notes 6, 8 and 9)
Commitments and contingencies (Note 12) |
|
See accompanying notes to the unaudited interim consolidated
financial statements. |
Penn West Petroleum
Ltd. |
Consolidated Statements of
Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
months ended
June 30 |
|
|
Six months ended
June 30 |
(CAD millions, except per share
amounts, unaudited) |
|
|
Note |
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and natural gas sales and
other income |
|
|
|
|
|
$ |
364 |
|
|
$ |
685 |
|
|
$ |
675 |
|
|
$ |
1,378 |
|
Royalties |
|
|
|
|
|
|
(39) |
|
|
|
(112) |
|
|
|
(76) |
|
|
|
(214) |
|
|
|
|
|
|
|
325 |
|
|
|
573 |
|
|
|
599 |
|
|
|
1,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk management gain (loss) |
|
|
8 |
|
|
|
(14) |
|
|
|
(11) |
|
|
|
38 |
|
|
|
(41) |
|
|
|
|
|
|
|
311 |
|
|
|
562 |
|
|
|
637 |
|
|
|
1,123 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
|
|
|
|
153 |
|
|
|
147 |
|
|
|
315 |
|
|
|
351 |
|
Transportation |
|
|
|
|
|
|
12 |
|
|
|
12 |
|
|
|
23 |
|
|
|
23 |
|
General and administrative |
|
|
|
|
|
|
23 |
|
|
|
34 |
|
|
|
45 |
|
|
|
70 |
|
Restructuring |
|
|
|
|
|
|
3 |
|
|
|
7 |
|
|
|
5 |
|
|
|
11 |
|
Share-based compensation |
|
|
10 |
|
|
|
7 |
|
|
|
8 |
|
|
|
7 |
|
|
|
17 |
|
Depletion and depreciation |
|
|
5 |
|
|
|
174 |
|
|
|
187 |
|
|
|
355 |
|
|
|
374 |
|
Loss (gain) on dispositions |
|
|
5 |
|
|
|
(95) |
|
|
|
- |
|
|
|
(95) |
|
|
|
48 |
|
Foreign exchange loss (gain) |
|
|
6 |
|
|
|
(21) |
|
|
|
(66) |
|
|
|
153 |
|
|
|
9 |
|
Exploration and evaluation |
|
|
4 |
|
|
|
- |
|
|
|
16 |
|
|
|
- |
|
|
|
16 |
|
Financing |
|
|
6 |
|
|
|
43 |
|
|
|
39 |
|
|
|
80 |
|
|
|
80 |
|
Accretion |
|
|
7 |
|
|
|
10 |
|
|
|
9 |
|
|
|
19 |
|
|
|
18 |
|
|
|
|
|
|
|
309 |
|
|
|
393 |
|
|
|
907 |
|
|
|
1,017 |
Income (loss)
before taxes |
|
|
|
|
|
|
2 |
|
|
|
169 |
|
|
|
(270) |
|
|
|
106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax expense |
|
|
11 |
|
|
|
30 |
|
|
|
26 |
|
|
|
6 |
|
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net and
comprehensive income (loss) |
|
|
|
|
|
$ |
(28) |
|
|
$ |
143 |
|
|
$ |
(276) |
|
|
$ |
54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
|
$ |
(0.06) |
|
|
$ |
0.29 |
|
|
$ |
(0.55) |
|
|
$ |
0.11 |
|
Diluted |
|
|
|
|
|
$ |
(0.06) |
|
|
$ |
0.29 |
|
|
$ |
(0.55) |
|
|
$ |
0.11 |
Weighted average shares outstanding (millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
9 |
|
|
|
502.2 |
|
|
|
492.4 |
|
|
|
501.8 |
|
|
|
491.4 |
|
Diluted |
|
|
9 |
|
|
|
502.2 |
|
|
|
492.6 |
|
|
|
501.8 |
|
|
|
491.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the unaudited interim consolidated
financial statements. |
Penn West Petroleum
Ltd. |
Consolidated Statements of Cash
Flows |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30 |
|
|
Six months ended
June 30 |
(CAD millions, unaudited) |
|
|
Note |
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
$ |
(28) |
|
|
$ |
143 |
|
|
$ |
(276) |
|
|
$ |
54 |
|
Depletion and depreciation |
|
|
5 |
|
|
|
174 |
|
|
|
187 |
|
|
|
355 |
|
|
|
374 |
|
Loss (gain) on dispositions |
|
|
5 |
|
|
|
(97) |
|
|
|
- |
|
|
|
(97) |
|
|
|
48 |
|
Exploration and evaluation |
|
|
|
|
|
|
- |
|
|
|
16 |
|
|
|
- |
|
|
|
16 |
|
Accretion |
|
|
7 |
|
|
|
10 |
|
|
|
9 |
|
|
|
19 |
|
|
|
18 |
|
Deferred tax expense |
|
|
11 |
|
|
|
30 |
|
|
|
26 |
|
|
|
8 |
|
|
|
52 |
|
Share-based
compensation |
|
|
10 |
|
|
|
1 |
|
|
|
2 |
|
|
|
2 |
|
|
|
5 |
|
Unrealized risk management loss
(gain) |
|
|
8 |
|
|
|
52 |
|
|
|
(16) |
|
|
|
75 |
|
|
|
(6) |
|
Unrealized foreign exchange loss
(gain) |
|
|
6 |
|
|
|
(95) |
|
|
|
(69) |
|
|
|
73 |
|
|
|
6 |
|
Decommissioning expenditures |
|
|
7 |
|
|
|
(5) |
|
|
|
(7) |
|
|
|
(16) |
|
|
|
(20) |
|
Change in non-cash working
capital |
|
|
|
|
|
|
(109) |
|
|
|
(77) |
|
|
|
(54) |
|
|
|
(111) |
|
|
|
|
|
|
|
(67) |
|
|
|
214 |
|
|
|
89 |
|
|
|
436 |
Investing
activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
|
|
|
|
(64) |
|
|
|
(65) |
|
|
|
(255) |
|
|
|
(260) |
|
Property dispositions
(acquisitions), net |
|
|
|
|
|
|
411 |
|
|
|
(1) |
|
|
|
412 |
|
|
|
212 |
|
Change in non-cash working
capital |
|
|
|
|
|
|
(65) |
|
|
|
(55) |
|
|
|
(143) |
|
|
|
(61) |
|
|
|
|
|
|
|
282 |
|
|
|
(121) |
|
|
|
14 |
|
|
|
(109) |
Financing
activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in long-term
debt |
|
|
6 |
|
|
|
295 |
|
|
|
9 |
|
|
|
484 |
|
|
|
(171) |
|
Repayments of senior notes |
|
|
6 |
|
|
|
(495) |
|
|
|
(62) |
|
|
|
(580) |
|
|
|
(62) |
|
Issue of equity |
|
|
|
|
|
|
- |
|
|
|
11 |
|
|
|
- |
|
|
|
11 |
|
Realized foreign exchange loss on
repayments |
|
|
6 |
|
|
|
74 |
|
|
|
3 |
|
|
|
80 |
|
|
|
3 |
|
Dividends paid |
|
|
|
|
|
|
(5) |
|
|
|
(54) |
|
|
|
(65) |
|
|
|
(108) |
|
|
|
|
|
|
|
(131) |
|
|
|
(93) |
|
|
|
(81) |
|
|
|
(327) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in
cash |
|
|
|
|
|
|
84 |
|
|
|
- |
|
|
|
22 |
|
|
|
- |
Cash, beginning of
period |
|
|
|
|
|
|
5 |
|
|
|
- |
|
|
|
67 |
|
|
|
- |
Cash, end of
period |
|
|
|
|
|
$ |
89 |
|
|
$ |
- |
|
|
$ |
89 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the unaudited interim consolidated
financial statements. |
Penn West Petroleum
Ltd. |
Statements of Changes in
Shareholders' Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(CAD millions, unaudited) |
|
|
Note |
|
|
|
Shareholders'
Capital |
|
|
|
Other
Reserves |
|
|
|
Deficit |
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2015 |
|
|
|
|
|
$ |
8,983 |
|
|
$ |
89 |
|
|
$ |
(3,490) |
|
|
$ |
5,582 |
Net and comprehensive loss |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
(276) |
|
|
|
(276) |
Share-based compensation |
|
|
10 |
|
|
|
- |
|
|
|
2 |
|
|
|
- |
|
|
|
2 |
Issued to dividend reinvestment plan |
|
|
9 |
|
|
|
10 |
|
|
|
- |
|
|
|
- |
|
|
|
10 |
Dividends declared |
|
|
9 |
|
|
|
- |
|
|
|
- |
|
|
|
(10) |
|
|
|
(10) |
Balance at June 30, 2015 |
|
|
|
|
|
$ |
8,993 |
|
|
$ |
91 |
|
|
$ |
(3,776) |
|
|
$ |
5,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(CAD millions, unaudited) |
|
|
Note |
|
|
|
Shareholders'
Capital |
|
|
|
Other
Reserves |
|
|
|
Deficit |
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2014 |
|
|
|
|
|
$ |
8,913 |
|
|
$ |
80 |
|
|
$ |
(1,480) |
|
|
$ |
7,513 |
Net and comprehensive income |
|
|
|
|
|
|
- |
|
|
|
- |
|
|
|
54 |
|
|
|
54 |
Share-based compensation |
|
|
10 |
|
|
|
- |
|
|
|
5 |
|
|
|
- |
|
|
|
5 |
Issued on exercise of options |
|
|
9 |
|
|
|
12 |
|
|
|
(1) |
|
|
|
- |
|
|
|
11 |
Issued to dividend reinvestment plan |
|
|
9 |
|
|
|
29 |
|
|
|
- |
|
|
|
- |
|
|
|
29 |
Dividends declared |
|
|
9 |
|
|
|
- |
|
|
|
- |
|
|
|
(138) |
|
|
|
(138) |
Balance at June 30, 2014 |
|
|
|
|
|
$ |
8,954 |
|
|
$ |
84 |
|
|
$ |
(1,564) |
|
|
$ |
7,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to the unaudited interim consolidated
financial statements. |
Notes to the Unaudited Consolidated Financial
Statements
(All tabular amounts are in CAD millions except numbers of common
shares, per share amounts,
percentages and various figures in Note 8)
1. Structure of Penn West
Penn West Petroleum Ltd. ("Penn West" or the
"Company") is a senior exploration and production company and is
governed by the laws of the Province of Alberta, Canada. The Company operates in one
segment, to explore for, develop and hold interests in oil and
natural gas properties and related production infrastructure in the
Western Canada Sedimentary Basin
directly and through investments in securities of subsidiaries
holding such interests. Penn West's portfolio of assets is managed
at an enterprise level, rather than by separate operating segments
or business units. The Company assesses its financial performance
at the enterprise level and resource allocation decisions are made
on a project basis across Penn West's portfolio of assets, without
regard to the geographic location of projects. Penn West
owns the petroleum and natural gas assets or 100 percent of the
equity, directly or indirectly, of the entities that carry on the
remainder of the oil and natural gas business of Penn West, except
for an unincorporated joint arrangement (the "Peace River Oil
Partnership") in which Penn West's wholly owned subsidiaries hold a
55 percent interest.
Penn West operates under the trade names of Penn
West and Penn West Exploration.
2. Basis of presentation and statement of compliance
a) Statement of Compliance
These unaudited condensed interim consolidated
financial statements ("interim consolidated financial statements")
are prepared in compliance with IAS 34 "Interim Financial
Reporting" and accordingly do not contain all of the disclosures
included in Penn West's annual audited consolidated financial
statements.
The interim consolidated financial statements
were prepared using the same accounting policies, critical
accounting judgments and key estimates as in the annual
consolidated financial statements as at and for the year ended
December 31, 2014.
All tabular amounts are in millions of Canadian
dollars, except numbers of common shares, per share amounts,
percentages and other figures as noted.
The interim consolidated financial statements
were approved for issuance by the Board of Directors on
July 29, 2015.
b) Basis of Presentation
The interim consolidated financial statements
include the accounts of Penn West, its wholly owned subsidiaries
and its proportionate interest in partnerships. Results from
acquired properties are included in Penn West's reported results
subsequent to the closing date and results from properties sold are
included until the closing date.
All intercompany balances, transactions, income
and expenses are eliminated on consolidation.
Certain comparative figures have been
reclassified to correspond with current period presentation.
3. Deferred funding assets
Deferred funding amounts relate to Penn West's
share of capital and operating expenses to be funded by Penn West's
partner in the Peace River Oil Partnership and Penn West's share of
capital expenditures to be funded by Penn West's partner in the
Cordova Joint Venture. Amounts expected to be settled within the
next 12 months are classified as current.
|
|
|
|
June 30, 2015 |
|
|
|
December 31, 2014 |
Peace River Oil Partnership |
|
|
$ |
167 |
|
|
$ |
195 |
Cordova Joint Venture |
|
|
|
83 |
|
|
|
84 |
Total |
|
|
$ |
250 |
|
|
$ |
279 |
|
|
|
|
|
|
|
|
|
Current portion |
|
|
$ |
69 |
|
|
$ |
84 |
Long-term portion |
|
|
|
181 |
|
|
|
195 |
Total |
|
|
$ |
250 |
|
|
$ |
279 |
4. Exploration and evaluation ("E&E") assets
|
|
|
|
Six months ended
June 30, 2015 |
|
|
|
Year ended
December 31, 2014 |
Balance, beginning of period |
|
|
$ |
505 |
|
|
$ |
645 |
Capital expenditures |
|
|
|
7 |
|
|
|
92 |
Joint venture, carried capital |
|
|
|
- |
|
|
|
16 |
Expense |
|
|
|
- |
|
|
|
(16) |
Transfers to PP&E |
|
|
|
(13) |
|
|
|
(232) |
Balance, end of period |
|
|
$ |
499 |
|
|
$ |
505 |
5. Property, plant and equipment
Cost |
|
|
|
Six months ended
June 30, 2015 |
|
|
|
Year ended
December 31, 2014 |
Balance, beginning of period |
|
|
$ |
17,456 |
|
|
$ |
17,974 |
Capital expenditures |
|
|
|
248 |
|
|
|
640 |
Joint venture, carried capital |
|
|
|
6 |
|
|
|
13 |
Acquisitions |
|
|
|
2 |
|
|
|
12 |
Dispositions |
|
|
|
(486) |
|
|
|
(1,416) |
Transfers from E&E |
|
|
|
13 |
|
|
|
232 |
Decommissioning additions (dispositions), net |
|
|
|
(19) |
|
|
|
1 |
Balance, end of period |
|
|
$ |
17,220 |
|
|
$ |
17,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depletion and
depreciation |
|
|
|
Six months ended
June 30, 2015 |
|
|
|
Year ended
December 31, 2014 |
Balance, beginning of period |
|
|
$ |
9,550 |
|
|
$ |
8,899 |
Depletion and depreciation |
|
|
|
355 |
|
|
|
750 |
Impairments |
|
|
|
- |
|
|
|
634 |
Dispositions |
|
|
|
(197) |
|
|
|
(733) |
Balance, end of period |
|
|
$ |
9,708 |
|
|
$ |
9,550 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value |
|
|
|
June 30, 2015 |
|
|
|
December 31, 2014 |
Total |
|
|
$ |
7,512 |
|
|
$ |
7,906 |
In 2015, Penn West has recorded gains on
dispositions of $95 million (2014 -
$48 million loss), which included
$2 million expense related to
advisory fees (2014 - insignificant).
6. Long-term debt
|
|
|
Amount
(millions) |
|
|
Maturity
dates |
|
|
Average
interest
rate (1) |
|
|
June 30, 2015 |
|
|
December 31, 2014 |
2007 Notes |
|
|
US$259 |
|
|
2015 - 2022 |
|
|
6.36% |
|
|
$ |
324 |
|
|
$ |
550 |
2008 Notes |
|
|
US$417, CAD$30 |
|
|
2016 - 2020 |
|
|
6.74% |
|
|
|
551 |
|
|
|
587 |
UK Notes |
|
|
£49 |
|
|
2018 |
|
|
6.95% (2) |
|
|
|
96 |
|
|
|
103 |
2009 Notes |
|
|
US$79 (3), £19,
€9 |
|
|
2015 - 2019 |
|
|
9.43% (4) |
|
|
|
149 |
|
|
|
158 |
2010 Q1 Notes |
|
|
US$187 |
|
|
2015 - 2025 |
|
|
6.20% |
|
|
|
234 |
|
|
|
341 |
2010 Q4 Notes |
|
|
US$146, CAD$48 |
|
|
2015 - 2025 |
|
|
5.47% |
|
|
|
231 |
|
|
|
258 |
2011 Notes |
|
|
US$91, CAD$23 |
|
|
2016 - 2021 |
|
|
4.99% |
|
|
|
137 |
|
|
|
152 |
Total senior notes |
|
|
|
|
|
|
|
|
|
|
|
|
1,722 |
|
|
|
2,149 |
Syndicated bank facility advances |
|
|
|
|
|
|
|
|
|
|
|
|
484 |
|
|
|
- |
Total long-term debt |
|
|
|
|
|
|
|
|
|
|
|
$ |
2,206 |
|
|
$ |
2,149 |
(1) |
Average interest rate can fluctuate based on consolidated debt
to EBITDA ratio which expires on March 30, 2017, the date the
covenant relief period ends with the bank syndicate and
noteholders. |
(2) |
These notes currently bear interest at 8.28 percent in Pounds
Sterling, however, contracts were entered to fix the interest rate
at 6.95 percent in Canadian dollars and to fix the exchange rate on
the repayment (refer to Note 8). |
(3) |
A portion of the 2009 Notes have equal repayments, which began
in 2013 with a repayment of US$5 million, and extend over the
remaining six years. |
(4) |
The Company entered into contracts to fix the interest rate on
the Pounds Sterling and Euro tranches, initially at 9.99 percent
and 10.02 percent, to 9.15 percent and 9.22 percent, respectively,
and to fix the exchange rate on repayment (refer to Note 8). |
The split between current and non-current long-term debt is as
follows:
|
|
|
|
June 30, 2015 |
|
|
|
December 31, 2014 |
Current portion |
|
|
$ |
321 |
|
|
$ |
283 |
Long-term
portion |
|
|
|
1,885 |
|
|
|
1,866 |
Total |
|
|
$ |
2,206 |
|
|
$ |
2,149 |
There were no senior notes issued in either 2015 or 2014.
Subsequent to June 30, 2015,
$98 million from the most recently
completed dispositions was offered and accepted by lenders for
further prepayments of outstanding notes and repayment of
indebtedness on our syndicated bank facility on a pro rata basis.
The pro rata syndicated bank facility allocation of $17 million was repaid in early July. The Company
expects the allocated noteholders amount to be paid on August 7, 2015.
Additional information on Penn West's senior
notes is as follows:
|
|
|
|
June 30,
2015 |
|
|
|
December 31,
2014 |
Weighted average remaining life
(years) |
|
|
|
3.6 |
|
|
|
3.7 |
Weighted average interest rate
(1) |
|
|
|
6.5% |
|
|
|
6.0% |
(1) |
Includes the effect of cross currency swaps (refer to
Note 8). |
At June 30, 2015,
the Company had a secured, revolving syndicated bank facility with
an aggregate borrowing limit of $1.2
billion and an extendible five-year term (May 6, 2019 maturity date). The syndicated bank
facility contains provisions for stamping fees on bankers'
acceptances and LIBOR loans and standby fees on unutilized credit
lines that vary depending on certain consolidated financial ratios.
At June 30, 2015, the Company had
$0.7 billion of unused credit
capacity available.
Drawings on the Company's bank facility are
subject to fluctuations in short-term money market rates as they
are generally held in short-term money market instruments. At
June 30, 2015, 22 percent
(December 31, 2014 - none) of Penn
West's long-term debt instruments were exposed to changes in
short-term interest rates.
The Company is subject to certain financial
covenants under its syndicated bank facility and senior notes.
These types of financial covenants are typical for senior lending
arrangements and include senior debt and total debt to EBITDA and
senior debt and total debt to capitalization, as more specifically
defined in the applicable lending agreements. At June 30, 2015, the Company was in compliance with
all of its financial covenants under such lending agreements.
Letters of credit totalling $47 million were outstanding on June 30, 2015 (December
31, 2014 - $30 million) that
reduce the amount otherwise available to be drawn on the syndicated
bank facility.
In May 2015, the
Company finalized amending agreements with the lenders under its
syndicated bank facility and with the holders of its senior notes
to, among other things, amend its financial covenants as
follows:
- the maximum Senior Debt to EBITDA and Total Debt to EBITDA
ratio will be less than or equal to 5:1 for the period January 1, 2015 through and including
June 30, 2016, decreasing to less
than or equal to 4.5:1 for the quarter ending September 30, 2016 and decreasing to less than or
equal to 4:1 for the quarter ending December
31, 2016;
- the Senior Debt to EBITDA ratio will decrease to less than or
equal to 3:1 for the period from and after January 1, 2017; and
- the Total Debt to EBITDA ratio will remain at less than or
equal to 4:1 for all periods after December
31, 2016.
The Company also agreed to the following:
- to temporarily grant floating charge security over all of its
property in favor of the lenders and the noteholders on a pari
passu basis, which security will be fully released upon the Company
achieving both (i) a Senior Debt to EBITDA ratio of 3:1 or less for
four consecutive quarters, and (ii) an investment grade rating on
its senior unsecured debt;
- to cancel the $500 million
tranche of the Company's existing $1.7
billion syndicated bank facility that was set to expire on
June 30, 2016, the remaining
$1.2 billion tranche of the
syndicated bank facility remains available to the Company in
accordance with the terms of the agreements governing such
facility;
- to temporarily reduce its quarterly dividend commencing in the
first quarter of 2015 to $0.01 per
share until the earlier of (i) the Senior Debt to EBITDA being less
than 3:1 for two consecutive quarters ending on or after
September 30, 2015, and (ii)
March 30, 2017; and
- until March 30, 2017, to use net
proceeds from any asset dispositions to repay at par $650 million of the outstanding principal amounts
owing to noteholders, with corresponding pro rata amounts from such
asset dispositions to be used to repay any outstanding amounts
drawn under its syndicated bank facility.
During the second quarter of 2015, Penn West
repaid senior notes in an aggregate amount of US$165 million as part of normal maturities and
additional amounts of US$202 million,
$18 million, £8 million and €1 million of senior notes were
prepaid as a result of the offers made at par to its noteholders
using asset disposition proceeds. Penn West also repaid a total of
$38 million outstanding under its
syndicated bank facility using asset disposition proceeds. Penn
West records unrealized foreign exchange gains or losses on its
senior notes as amounts are translated into Canadian dollars at the
rate of exchange in effect at the balance sheet date.
The split between realized and unrealized foreign exchange is as
follows:
|
|
|
Three months ended
June 30 |
|
|
Six months ended
June 30 |
|
|
|
|
2015 |
|
|
|
2014 |
|
|
|
2015 |
|
|
|
2014 |
Realized foreign exchange loss on debt
maturities |
|
|
$ |
(30) |
|
|
$ |
(3) |
|
|
$ |
(36) |
|
|
$ |
(3) |
Realized foreign exchange loss on debt
pre-payments |
|
|
|
(44) |
|
|
|
- |
|
|
|
(44) |
|
|
|
- |
Unrealized foreign exchange gain (loss) |
|
|
|
95 |
|
|
|
69 |
|
|
|
(73) |
|
|
|
(6) |
Foreign exchange gain (loss) |
|
|
$ |
21 |
|
|
$ |
66 |
|
|
$ |
(153) |
|
|
$ |
(9) |
7. Decommissioning liability
The decommissioning liability was determined by
applying an inflation factor of 2.0 percent (December 31, 2014 - 2.0 percent) and the inflated
amount was discounted using a credit-adjusted rate of 6.5 percent
(December 31, 2014 - 6.5 percent)
over the expected useful life of the underlying assets, currently
extending over 50 years into the future.
The split between current and non-current decommissioning
liability is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2015 |
|
|
December 31,
2014 |
Current portion |
|
|
$ |
69 |
|
|
$ |
52 |
Long-term portion |
|
|
|
500 |
|
|
|
533 |
Total |
|
|
$ |
569 |
|
|
$ |
585 |
Changes to the decommissioning liability were as follows:
|
|
|
Six months
ended
June 30, 2015 |
|
|
Year ended
December 31, 2014 |
Balance, beginning of period |
|
|
$ |
585 |
|
|
$ |
603 |
Net liabilities incurred (disposed)
(1) |
|
|
|
(15) |
|
|
|
(75) |
Increase (decrease) in liability due to change in
estimate |
|
|
|
(4) |
|
|
|
76 |
Liabilities settled |
|
|
|
(16) |
|
|
|
(55) |
Accretion charges |
|
|
|
19 |
|
|
|
36 |
Balance, end of period |
|
|
$ |
569 |
|
|
$ |
585 |
(1) |
Includes additions from drilling activity, facility capital
spending and disposals related to net property dispositions. |
8. Risk management
Financial instruments consist of accounts
receivable, fair values of derivative financial instruments,
accounts payable and accrued liabilities, dividends payable and
long-term debt. Except for the senior, notes described in Note 6,
the fair values of these financial instruments approximate their
carrying amounts due to the short-term maturity of the instruments,
the mark to market values recorded for the financial instruments
and the market rate of interest applicable to the syndicated bank
facility. At June 30, 2015, the
estimated fair values of the principal and interest obligations of
the outstanding notes totalled $1.6
billion (December 31, 2014 -
$2.2 billion) compared to the
carrying value of $1.7 billion
(December 31, 2014 - $2.1 billion).
The fair values of all outstanding financial,
commodity, power, interest rate and foreign exchange contracts are
reflected on the balance sheet with the changes during the period
recorded in income as unrealized gains or losses.
As at June 30,
2015 and December 31, 2014,
the only asset or liability measured at fair value on a recurring
basis was the risk management asset and liability, which was valued
based on "Level 2 inputs" being quoted prices in markets that are
not active or based on prices that are observable for the asset or
liability.
The following table reconciles the changes in
the fair value of financial instruments outstanding:
Risk management asset
(liability) |
|
|
|
Six months ended
June 30, 2015 |
|
|
|
Year ended
December 31, 2014 |
Balance, beginning of
period |
|
|
$ |
114 |
|
|
$ |
12 |
Unrealized gain (loss)
on financial instruments: |
|
|
|
|
|
|
|
|
Commodity collars,
swaps and assignments |
|
|
|
(49) |
|
|
|
51 |
Electricity
swaps |
|
|
|
7 |
|
|
|
(2) |
Interest rate
swaps |
|
|
|
- |
|
|
|
1 |
|
Foreign exchange forwards |
|
|
|
(43) |
|
|
|
48 |
|
Cross currency swaps |
|
|
|
10 |
|
|
|
4 |
Total fair value, end
of period |
|
|
$ |
39 |
|
|
$ |
114 |
Penn West had the following financial
instruments outstanding as at June 30,
2015. Fair values are determined using external counterparty
information, which is compared to observable market data. Penn West
limits its credit risk by executing counterparty risk procedures
which include transacting only with institutions within Penn West's
syndicated bank facility or companies with high credit ratings and
by obtaining financial security in certain circumstances.
|
|
|
Notional
volume |
|
|
Remaining
term |
|
|
Pricing |
|
|
|
Fair value
(millions) |
Natural gas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AECO Swaps |
|
|
70,000 mcf/d |
|
|
Jul/15 - Dec/15 |
|
|
$2.86/mcf |
|
|
$ |
1 |
|
AECO Swaps |
|
|
14,200 mcf/d |
|
|
Jan/16 - Dec/16 |
|
|
$3.06/mcf |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude Oil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WTI Swaps |
|
|
7,500 bbl/d |
|
|
Jul/15 - Sep/15 |
|
|
US$52.00/bbl |
|
|
|
(7) |
|
WTI Swaps |
|
|
5,000 bbl/d |
|
|
Jul/15 - Sep/15 |
|
|
CAD$74.78/bbl |
|
|
|
- |
|
WTI Swaps |
|
|
12,500 bbl/d |
|
|
Oct/15 - Dec/15 |
|
|
CAD$72.57/bbl |
|
|
|
(4) |
|
WTI Swaps |
|
|
2,500 bbl/d |
|
|
Jan/16 - Mar/16 |
|
|
CAD$76.60/bbl |
|
|
|
- |
|
WTI Swaps |
|
|
5,000 bbl/d |
|
|
Jan/16 - Dec/16 |
|
|
CAD$72.08/bbl |
|
|
|
(9) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alberta Power Pool |
|
|
10 MW |
|
|
Jul/15 - Dec/15
|
|
|
$58.50/MWh |
|
|
|
- |
|
Alberta Power Pool |
|
|
70 MW |
|
|
Jul/15 - Dec/15 |
|
|
$55.17/MWh |
|
|
|
(2) |
|
Alberta Power Pool |
|
|
25 MW |
|
|
Jan/16 - Dec/16 |
|
|
$49.90/MWh |
|
|
|
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crude oil assignment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 - month term |
|
|
10,000 boe/d |
|
|
Jul/15 - May/16 |
|
|
Differential WCS (Edm)
vs. WCS (USGC) |
|
|
|
4 |
Foreign exchange
forwards on senior notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3 to 15-year initial term |
|
|
US$229 |
|
|
2015 - 2022 |
|
|
1.000 CAD/USD |
|
|
|
55 |
Foreign exchange
forwards on debt prepayments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$70 |
|
|
Aug/15 |
|
|
1.237 CAD/USD |
|
|
|
- |
Cross currency swaps |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10-year initial term |
|
|
£57 |
|
|
2018 |
|
|
2.0075 CAD/GBP, 6.95% |
|
|
|
(1) |
|
10-year initial term |
|
|
£20 |
|
|
2019 |
|
|
1.8051 CAD/GBP, 9.15% |
|
|
|
5 |
|
10-year initial term |
|
|
€10 |
|
|
2019 |
|
|
1.5870 CAD/EUR, 9.22% |
|
|
|
(2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
$ |
39 |
Based on June 30,
2015 pricing, a $1.00 change
in the price per barrel of liquids would have changed pre-tax
unrealized risk management by $5
million and a $0.10 change in
the price per mcf of natural gas would change pre-tax unrealized
risk management by $2 million.
Subsequent to June 30,
2015, the Company entered into additional crude oil swaps on
2,000 barrels per day of production in the first quarter of 2016 at
WTI $70.00 per barrel, 1,000 barrels
per day of production in the second quarter of 2016 at WTI
$71.50 per barrel and AECO swaps for
2016 on 4,700 mcf per day of production at an average price of
$3.13 per mcf.
The components of risk management on the Statement of Income are
as follows:
|
|
|
Three months ended
June 30 |
|
|
Six months ended
June 30 |
|
|
|
|
2015 |
|
|
|
2014 |
|
|
|
2015 |
|
|
|
2014 |
Realized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement of commodity contracts/assignment |
|
|
$ |
(4) |
|
|
$ |
(29) |
|
|
$ |
7 |
|
|
$ |
(49) |
|
Monetization of commodity contracts |
|
|
|
- |
|
|
|
- |
|
|
|
18 |
|
|
|
- |
|
Settlement of foreign exchange contracts |
|
|
|
23 |
|
|
|
2 |
|
|
|
25 |
|
|
|
2 |
|
Monetization of foreign exchange contracts |
|
|
|
19 |
|
|
|
- |
|
|
|
63 |
|
|
|
- |
Total realized risk management gain
(loss) |
|
|
|
38 |
|
|
|
(27) |
|
|
|
113 |
|
|
|
(47) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts |
|
|
|
(17) |
|
|
|
39 |
|
|
|
(42) |
|
|
|
1 |
|
Electricity swaps |
|
|
|
11 |
|
|
|
3 |
|
|
|
7 |
|
|
|
4 |
|
Interest rate swaps |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
Crude oil assignment |
|
|
|
(4) |
|
|
|
- |
|
|
|
(7) |
|
|
|
- |
|
Foreign exchange contracts |
|
|
|
(49) |
|
|
|
(21) |
|
|
|
(43) |
|
|
|
(3) |
|
Cross-currency swaps |
|
|
|
7 |
|
|
|
(5) |
|
|
|
10 |
|
|
|
3 |
Total unrealized risk management gain
(loss) |
|
|
|
(52) |
|
|
|
16 |
|
|
|
(75) |
|
|
|
6 |
Risk management gain (loss) |
|
|
$ |
(14) |
|
|
$ |
(11) |
|
|
$ |
38 |
|
|
$ |
(41) |
Operating costs for the six months ended
June 30, 2015 include a realized loss
of $4 million (2014 - $2 million loss) on electricity contracts and for
the second quarter a realized gain of $1
million (2014 - $2 million
loss).
Market risks
Penn West is exposed to normal market risks
inherent in the oil and natural gas business, including, but not
limited to, commodity price risk, foreign currency rate risk,
credit risk, interest rate risk and liquidity risk. The Company
seeks to mitigate these risks through various business processes
and management controls and from time to time by using financial
instruments.
There have been no significant changes to these
risks from those discussed in Penn West's annual audited
consolidated financial statements.
Foreign currency rate risk
In 2015, the Company monetized a total of
US$315 million of foreign exchange
forward contracts on senior notes and settled US$77 million as part of normal course
maturities. At June 30, 2015, the
following foreign currency forward contracts were outstanding:
Nominal Amount |
|
|
|
Settlement date |
|
|
|
Exchange rate |
Buy US$70 |
|
|
|
2015 |
|
|
|
1.237 CAD/USD |
Buy US$18 |
|
|
|
2016 |
|
|
|
0.995 CAD/USD |
Buy US$78 |
|
|
|
2017 |
|
|
|
0.999 CAD/USD |
Buy US$26 |
|
|
|
2018 |
|
|
|
0.995 CAD/USD |
Buy US$76 |
|
|
|
2019 |
|
|
|
0.992 CAD/USD |
Buy US$31 |
|
|
|
2020 |
|
|
|
0.995 CAD/USD |
9. Shareholders' equity
i) Issued
Shareholders' capital |
|
|
Common Shares |
|
|
|
Amount |
Balance, January 1, 2014 |
|
|
489,077,284 |
|
|
$ |
8,913 |
Issued on exercise of equity
compensation plans (1) |
|
|
1,067,000 |
|
|
|
12 |
Issued to dividend reinvestment
plan |
|
|
7,175,803 |
|
|
|
58 |
Balance, December 31, 2014 |
|
|
497,320,087 |
|
|
|
8,983 |
Issued to dividend reinvestment
plan |
|
|
4,843,076 |
|
|
|
10 |
Balance, June 30, 2015 |
|
|
502,163,163 |
|
|
$ |
8,993 |
(1) |
Upon exercise of options, the net benefit is recorded as a
reduction of other reserves and an increase to shareholders'
capital. |
ii) Earnings per share - Basic and
Diluted
The weighted average number of shares used to
calculate per share amounts was as follows:
|
|
|
Three months ended
June 30 |
|
|
Six months ended
June 30 |
Average shares outstanding (millions) |
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
Weighted average |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
502.2 |
|
|
492.4 |
|
|
501.8 |
|
|
491.4 |
Dilutive impact |
|
|
- |
|
|
0.2 |
|
|
- |
|
|
- |
Diluted |
|
|
502.2 |
|
|
492.6 |
|
|
501.8 |
|
|
491.4 |
For the second quarter of 2015, 17.4 million
shares (2014 - 12.4 million) that would be issued under the Stock
Option Plan ("Option Plan") were excluded in calculating the
weighted average number of diluted shares outstanding as they were
considered anti-dilutive.
For the first six months of 2015, 17.4 million
shares (2014 - 18.7 million) that would be issued under the Option
Plan were excluded in calculating the weighted average number of
diluted shares outstanding as they were considered
anti-dilutive.
iii) Dividends
Including amounts funded by the Dividend
Reinvestment Plan, Penn West paid dividends of $0.01 per share totalling $5 million in the second quarter of 2015 and
$75 million in the first six months
of 2015. On July 15, 2015, Penn West
paid its second quarter dividend of $0.01 per share totalling $5 million.
10. Share-based compensation
Stock Option Plan
Penn West has an Option Plan that allows Penn
West to issue options to acquire common shares to officers,
employees and other service providers. The current plan came into
effect in 2011.
Under the terms of the plan, the number of
options reserved for issuance under the Option Plan shall not
exceed nine percent of the aggregate number of issued and
outstanding common shares of Penn West. The grant price of options
is equal to the volume-weighted average trading price of the common
shares on the TSX for a five-trading-day period immediately
preceding the date of grant. Options granted to date vest over a
four-year period and expire five years after the date of grant.
|
|
|
Six months
ended
June 30, 2015 |
|
|
Year ended
December 31, 2014 |
Options |
|
|
Number of
Options |
|
|
Weighted
Average
Exercise Price |
|
|
Number of
Options |
|
|
Weighted Average
Exercise Price |
Outstanding, beginning of period |
|
|
14,460,158 |
|
|
$ |
13.91 |
|
|
14,951,830 |
|
|
$ |
17.63 |
Granted |
|
|
5,061,500 |
|
|
|
1.86 |
|
|
8,332,400 |
|
|
|
8.84 |
Exercised |
|
|
- |
|
|
|
- |
|
|
(1,067,000) |
|
|
|
9.80 |
Forfeited/ Expired |
|
|
(2,131,479) |
|
|
|
12.87 |
|
|
(7,757,072) |
|
|
|
16.20 |
Outstanding, end of period |
|
|
17,390,179 |
|
|
$ |
10.53 |
|
|
14,460,158 |
|
|
$ |
13.91 |
Exercisable, end of period |
|
|
6,220,414 |
|
|
$ |
17.58 |
|
|
4,162,904 |
|
|
$ |
20.14 |
Long-Term Retention and Incentive Plan ("LTRIP")
Under the LTRIP, Penn West employees receive
cash consideration, that fluctuates based on Penn West's share
price on the TSX. Eligible employees receive a grant of a specific
number of LTRIP awards (each of which notionally represents a
common share) that vest over a three-year period with the cash
value paid to the employee on each vesting date. If the service
requirements are met, the cash consideration paid is based on the
number of LTRIP awards vested and the five-day weighted average
trading price of the common shares prior to the vesting date plus
dividends declared by Penn West during the period preceding the
vesting date.
LTRIP awards (number of shares
equivalent) |
|
|
Six months ended
June 30, 2015 |
|
|
Year ended
December 31, 2014 |
Outstanding, beginning of
period |
|
|
3,166,476 |
|
|
2,813,769 |
Granted |
|
|
8,980,950 |
|
|
2,749,440 |
Vested and paid |
|
|
(1,156,440) |
|
|
(1,132,029) |
Forfeited/ Expired |
|
|
(678,810) |
|
|
(1,264,704) |
Outstanding, end of period |
|
|
10,312,176 |
|
|
3,166,476 |
At June 30, 2015,
LTRIP obligations of $4 million were
classified as a current liability (December
31, 2014 - $4 million)
included in accounts payable and accrued liabilities and
$3 million was classified as a
non-current liability (December 31,
2014 - $3 million) included in
other non-current liabilities.
Deferred Share Unit ("DSU") Plan
The DSU plan became effective in 2011, allowing
Penn West to grant DSUs in lieu of cash fees to non-employee
directors providing a right to receive, upon retirement, a cash
payment based on the volume-weighted-average trading price of the
common shares on the TSX for the five trading days immediately
prior to the day of payment. Management directors are not eligible
to participate in the DSU Plan. At June 30,
2015, 336,330 DSUs (December 31,
2014 - 181,873) were outstanding and $1 million was recorded as a current liability
(December 31, 2014 - $1 million).
Performance Share Unit ("PSU") Plan
The PSU plan became effective in 2013, allowing
Penn West to grant PSUs to employees of Penn West. Upon meeting the
vesting conditions, the employee could receive a cash payment based
on performance factors determined by the Board of Directors and the
share price. Members of the Board of Directors are not eligible for
the PSU Plan.
PSU awards (number of shares
equivalent) |
|
|
Six months ended
June 30, 2015 |
|
|
Year ended
December 31, 2014 |
Outstanding, beginning of period |
|
|
771,020 |
|
|
969,723 |
Granted |
|
|
1,483,000 |
|
|
620,000 |
Vested |
|
|
(180,010) |
|
|
(570,770) |
Forfeited |
|
|
(103,161) |
|
|
(247,933) |
Outstanding, end of period |
|
|
1,970,849 |
|
|
771,020 |
The PSU obligation is classified as a liability
due to the cash settlement feature. The change in the fair value of
outstanding PSU awards is charged to income based on the common
share price at the end of each reporting period plus accumulated
dividends multiplied by a performance factor determined by the
Board of Directors. At June 30, 2015,
$1 million (December 31, 2014 - nil) was a current liability
included in accounts payable and accrued liabilities and
$1 million was classified as a
non-current liability (December 31,
2014 - $1 million) and
included in other non-current liabilities.
Share-based compensation
Share-based compensation is based on the fair
value of the options at the time of grant under the Option Plan,
which is amortized over the remaining vesting period on a graded
vesting schedule. Share-based compensation under the LTRIP, DSU and
PSU is based on the fair value of the awards outstanding at the
reporting date and is amortized based on a graded vesting schedule.
Share-based compensation consisted of the following:
|
|
|
Six months ended June 30 |
|
|
|
|
2015 |
|
|
|
2014 |
Options |
|
|
$ |
2 |
|
|
$ |
5 |
LTRIP |
|
|
|
4 |
|
|
|
9 |
PSU |
|
|
|
1 |
|
|
|
3 |
Share-based compensation |
|
|
$ |
7 |
|
|
$ |
17 |
The share price used in the fair value
calculation of the LTRIP, PSU and DSU obligations at June 30, 2015 was $2.15 (June 30,
2014 - $10.42). Share-based
compensation related to the DSU was insignificant in both
periods.
A Black-Scholes option-pricing model was used to determine the
fair value of options granted under the Option Plan with the
following fair value per option and weighted average
assumptions:
|
|
|
Six months ended June 30 |
|
|
|
2015 |
|
|
2014 |
Average fair value of options granted (per
share) |
|
|
$ |
0.63 |
|
|
$ |
1.26 |
Expected life of options (years) |
|
|
|
4.0 |
|
|
|
4.0 |
Expected volatility (average) |
|
|
|
43.6% |
|
|
|
31.3% |
Risk-free rate of return (average) |
|
|
|
0.6% |
|
|
|
1.4% |
Dividend yield |
|
|
|
2.0% |
|
|
|
6.1% |
Employee retirement savings plan
Penn West has an employee retirement savings
plan (the "savings plan") for the benefit of all employees. Under
the savings plan, employees may elect to contribute up to 10
percent of their salary and Penn West matches these contributions
at a rate of $1.50 for each
$1.00 of employee contribution. Both
the employee's and Penn West's contributions are used to acquire
Penn West common shares or are placed in low-risk investments.
Shares are purchased in the open market at prevailing market
prices.
11. Deferred income taxes
The proposed corporate tax rate increase in
Alberta from 10 percent to 12
percent was substantively enacted during the second quarter. As a
result of this change, a $60 million
charge was recorded in deferred income tax expense during the
period.
In 2015, the Company has received Investment tax
credit refunds totalling $2 million
(2014 - nil) which was included in deferred income taxes.
12. Commitments and contingencies
Penn West is involved in various litigation and
claims in the normal course of business and records provisions for
claims as required. In 2014, Penn West became aware of
a number of putative securities class action claims having
been filed or threatened to be filed in both Canada and the
United States relating to damages alleged to have been
incurred due to a decline in share price related to the restatement
of certain of Penn West's historical financial statements and
related MD&A. In 2014, Penn West was served with statements of
claim against the Company and certain of its present and former
directors and officers relating to such types of securities class
actions in the Provinces of Alberta, Ontario and Quebec and in the
United States. To date, none of these proceedings has been
certified under applicable class proceedings legislation. In
the United States, the Court has
consolidated the various actions, appointed lead plaintiffs, and
set a scheduling for the parties to brief a motion to dismiss.
Amounts claimed in the Canadian and United States proceedings are significant, but
at this stage in the process, any estimate of the Company's
potential exposure or liability, if any, are premature and cannot
be meaningfully determined. The Company intends to vigorously
defend against any such actions.
Investor Information
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 & 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 4.3 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.
2015 Second Quarter Results Conference Call
Details
A conference call and webcast presentation will be held to
discuss the matters noted above at 9:00am
Mountain Time (11:00am Eastern
Time) on Thursday, July 30,
2015.
To listen to the conference call, please call 647-427-7450 or
1-888-231-8191 (toll-free). This call will be broadcast live on the
Internet and may be accessed directly at the following URL:
http://event.on24.com/r.htm?e=1017770&s=1&k=95661ED22218B408F36E9EECE402E17E
A digital recording will be available for replay
two hours after the call's completion, and will remain available
until August 13, 2015 21:59 Mountain Time (23:59
Eastern Time). To listen to the replay, please dial
416-849-0833 or 1-855-859-2056 (toll-free) and enter Conference ID
74205279, followed by the pound (#) key.
SOURCE Penn West