CALGARY, Alberta, July 30, 2015 /PRNewswire/ -- 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
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Financial
(millions, except per share amounts)
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Gross revenues
(1,2)
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$
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360
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$
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656
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(45)
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$
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700
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$
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1,329
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(47)
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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)
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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)
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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)
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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)
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Long-term debt at
period-end
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$
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2,206
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$
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2,234
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(1)
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$
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2,206
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$
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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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$
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5
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$
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69
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(93)
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$
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75
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$
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137
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(45)
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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)
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Dividends paid in
cash
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$
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5
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$
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54
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(91)
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$
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65
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$
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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)
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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)
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Average sales
price
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Light oil and NGL
(per bbl)
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$
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58.05
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$
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95.22
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(39)
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$
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52.05
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$
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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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$
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2.78
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$
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4.96
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(44)
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$
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2.93
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$
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5.37
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(45)
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Netback per
boe
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Sales
price
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$
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43.84
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$
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70.34
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(38)
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$
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39.53
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$
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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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$
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18.72
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$
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39.37
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(52)
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$
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16.42
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$
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37.41
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(56)
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(1)
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Gross revenues
include realized gains and losses on commodity
contracts.
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(2)
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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.
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(3)
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Includes capital
carried by partners.
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(4)
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Includes dividends
paid in cash that are subsequently reinvested to purchase shares
from treasury under the dividend reinvestment plan.
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(5)
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Please refer to the
"Oil and Gas Information Advisory" section below for information
regarding the term "boe".
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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 $414
million, all of which have been or will be applied to debt
repayment.
· As part of our
on-going program to protect funds flow, Penn West layered in
several additional crude oil hedges during and subsequent to the
second quarter. Accordingly, the Company currently has crude oil
hedges in place as follows:
Notional
Volumes
(bbls/d)
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Contract
Term
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Pricing
(C$ WTI/bbl)
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12,500
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Q3/15
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70.40
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12,500
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Q4/15
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72.57
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9,500
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Q1/16
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72.83
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6,000
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Q2/16
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71.94
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5,000
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Q3/16
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72.08
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5,000
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Q4/16
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72.08
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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
$575 million as a result of a
deferral of certain projects and reduced cost estimates.
Table 1: Summary of Changes to 2015 Capital Budget and
Assumptions
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Nov 17, 2014
Budget
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Dec 17, 2014
Revision
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Jul 29, 2015
Revision
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Change
From Dec
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Canadian Light
Sweet
Crude Oil Assumption (C$/bbl)
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$86.50
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$65.00
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$60.00
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-7.7%
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AECO Natural Gas
Assumption (C$/mcf)
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$3.69
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$3.25
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$3.25
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nil
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C$/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%
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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
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Capital Budget
(MM)
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$840
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$625
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$575
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-8.0%
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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%
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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
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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
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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
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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
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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
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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
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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.
For further information:
PENN WEST
Penn West Plaza
Suite 200, 207 - 9th Avenue SW
Calgary, Alberta T2P 1K3
Phone: 403-777-2500
Fax: 403-777-2699
Toll Free: 1-866-693-2707
Website: www.pennwest.com
Investor Relations:
Toll Free: 1-888-770-2633
E-mail: investor_relations@pennwest.com
Clayton Paradis, Manager,
Investor Relations
Phone: 403-539-6343
E-mail: clayton.paradis@pennwest.com
SOURCE Penn West