CALGARY,
Nov. 5, 2015 /CNW/ - PENN WEST
PETROLEUM LTD. (TSX - PWT; NYSE - PWE) ("Penn West", the
"Company", "we", "us" or "our") is
pleased to announce its financial and operational results for the
third quarter ended September 30,
2015. All figures are in Canadian dollars unless otherwise
stated.
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Three months ended September 30 |
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Nine months ended September 30 |
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2015 |
2014 |
% change |
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2015 |
2014 |
% change |
Financial (millions, except per
share amounts) |
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Gross revenues (1,2) |
$ |
295 |
$ |
589 |
(50) |
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$ |
995 |
$ |
1,918 |
(48) |
Funds flow from
operations (2) |
|
45 |
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232 |
(81) |
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201 |
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811 |
(75) |
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Basic per share
(2) |
|
0.09 |
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0.47 |
(81) |
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0.40 |
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1.65 |
(76) |
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Diluted per share
(2) |
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0.09 |
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0.47 |
(81) |
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0.40 |
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1.65 |
(76) |
Funds flow
(2) |
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14 |
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231 |
(94) |
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173 |
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798 |
(78) |
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Basic per share
(2) |
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0.03 |
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0.47 |
(94) |
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0.34 |
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1.62 |
(79) |
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Diluted per share
(2) |
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0.03 |
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0.47 |
(94) |
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0.34 |
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1.62 |
(79) |
Net income (loss) |
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(764) |
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(15) |
>100 |
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(1,040) |
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39 |
>(100) |
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Basic per share |
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(1.52) |
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(0.03) |
>100 |
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(2.07) |
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0.08 |
>(100) |
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Diluted per share |
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(1.52) |
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(0.03) |
>100 |
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(2.07) |
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0.08 |
>(100) |
Capital expenditures
(3) |
116 |
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225 |
(48) |
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371 |
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485 |
(24) |
Long-term debt at period-end |
$ |
2,249 |
$ |
2,192 |
3 |
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$ |
2,249 |
$ |
2,192 |
3 |
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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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44,170 |
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51,675 |
(15) |
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49,267 |
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55,301 |
(11) |
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Heavy oil (bbls/d) |
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11,153 |
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13,012 |
(14) |
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11,992 |
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13,251 |
(10) |
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Natural gas (mmcf/d) |
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161 |
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217 |
(26) |
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169 |
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226 |
(25) |
Total production
(boe/d) (4) |
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82,198 |
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100,839 |
(18) |
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89,376 |
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106,296 |
(16) |
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Average sales price |
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Light oil and NGL (per bbl) |
$ |
48.28 |
$ |
87.49 |
(45) |
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$ |
50.91 |
$ |
92.21 |
(45) |
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Heavy oil (per bbl) |
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31.20 |
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72.59 |
(57) |
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35.91 |
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73.93 |
(51) |
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Natural gas (per mcf) |
$ |
2.99 |
$ |
4.33 |
(31) |
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$ |
2.95 |
$ |
5.03 |
(41) |
Netback per boe |
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Sales price |
$ |
36.05 |
$ |
64.01 |
(44) |
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$ |
38.45 |
$ |
67.91 |
(43) |
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Commodity gain (loss) |
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2.83 |
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(0.65) |
>(100) |
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1.91 |
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(1.91) |
>(100) |
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Net sales price |
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38.88 |
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63.36 |
(39) |
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40.36 |
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66.00 |
(39) |
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Royalties |
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(2.72) |
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(8.99) |
(70) |
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(3.95) |
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(10.23) |
(61) |
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Transportation |
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(1.55) |
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(1.12) |
38 |
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(1.43) |
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(1.17) |
22 |
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Operating expenses |
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(20.89) |
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(20.74) |
1 |
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(19.41) |
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(18.75) |
4 |
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Netback (2) |
$ |
13.72 |
$ |
32.51 |
(58) |
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$ |
15.57 |
$ |
35.85 |
(57) |
(1) |
Gross revenues include realized gains and losses on commodity
contracts. |
(2) |
The terms "gross revenues", "funds flow", "funds flow from
operations" and their applicable per share amounts, and "netback"
are non-GAAP measures. Please refer to the "Calculation of Funds
Flow/ Funds Flow From Operations" and "Non-GAAP Measures" sections
below. |
(3) |
Capital expenditures include costs related to Property, Plant
and Equipment and Exploration and Evaluation. Includes capital
carried by partners. |
(4) |
Please refer to the "Oil and Gas Information Advisory" section
below for information regarding the term "boe". |
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President's Message
The third quarter was focused on strengthening
our balance sheet and continuing to lower costs within our
business. On September 1, we
announced specific actions we will take in the context of the
current commodity price environment in order to prevent the Company
from taking on additional debt. We undertook a 35 percent
workforce reduction to significantly reduce our cost structure, we
suspended our dividend, and we made clear we intend to align our
capital expenditures to be within our funds flow from operations on
an annual basis starting in 2016.
We also highlighted our non-core assets which
comprised approximately 34,000 barrels of oil equivalent per day of
production. We not only reiterated our focus on two of our
core assets, the Viking and the Cardium, but we have since
announced two sales of non-core assets. The dispositions of
our Mitsue properties and our Weyburn Unit working interest that we
announced following September 1
provide proceeds of almost $400
million, which we will apply against our outstanding
debt. With approximately $810
million in divestitures announced this year, we have
surpassed our $650 million non-core
asset disposition target, despite a challenging commodity price
environment. We believe that these transactions continue to
demonstrate our ability to complete non-core asset dispositions at
attractive deal metrics. We will continue our divestiture
process on additional non-core assets.
We continue to be in compliance with all of our
financial covenants and had approximately $650 million of undrawn capacity under our
syndicated bank facility of $1.2
billion, at the end of the third quarter, and Senior Debt to
EBITDA was 4.3 times, relative to the 5.0 times covenant. We
expect to create some additional headroom in the covenant in the
fourth quarter when we apply proceeds from our dispositions against
outstanding debt. Additionally, we view the monetization of
our existing foreign exchange hedges as a key lever in remaining
within covenant levels. Given the progress we have made on
our disposition program, we may no longer need to monetize our
remaining foreign exchange hedges until next year.
The third quarter was operationally challenged
in part due to third party pipeline access issues, particularly in
the Cardium, causing production to come in below our
expectations. Although we continue to find ways to mitigate
the impact, we now anticipate these pipeline access issues will
impact some volumes through the first half of 2016. We remain
positive on our Cardium position, as reflected by some initial well
results from our second half drilling program. Three of our
wells each averaged above 500 barrels of oil equivalent per day,
over a three day period. One of these wells exceeded 1,600
barrels of oil equivalent per day, over a three day period, while
another well produced in excess of 3,000 barrels of oil in a single
day.
We continue to ramp down activity to reach our
target pace and resulting capital run rate. While we had
seven rigs running at the end of July, we are now down to five rigs
and expect to be down to three rigs by mid-November. This
would leave us with a single rig in Viking and two rigs in PROP,
where we are largely carried by our joint venture partner.
We believe that our business is better
positioned today than at the start of the quarter, however, we have
more work to do. Over the last year, we have been proactive
in responding to the decline in commodity prices by engaging our
lenders early on to ensure sufficient flexibility within our
covenant limits. We have been successful with our
divestitures during a period where the industry has seen a limited
number of transactions. As I have said before, we continue to
build the enterprise to operate in a 'lower for longer'
environment. We remain committed to reducing our leverage and
will continue to engage buyers that see value in our non-core asset
base. Although we are now a leaner Company, we remain well
positioned to execute through the rest of the year and into
2016.
We remain disciplined and I am confident we are
taking the steps required to ensure a strong future for Penn West
and provide our shareholders with long-term value. I look forward
to updating you on our progress and providing our 2016 budget in
the new year.
Financial and Operational Highlights
- During the third quarter, we entered into agreements to sell
our Mitsue properties for proceeds of approximately $193 million and our Weyburn Unit working interest for proceeds of
$205 million, prior to closing
adjustments. Subsequent to the end of the third quarter, the
Mitsue transaction closed on October 30,
2015 and we anticipate the Weyburn transaction to close in November 2015, with proceeds from both
dispositions to be applied against our senior notes and our
syndicated bank facility
- As at September 30, 2015, we were
in compliance with all of our financial covenants under our lending
agreements and had approximately $650
million of undrawn capacity under our syndicated bank
facility of $1.2 billion. Senior Debt
to EBITDA was 4.3 times, relative to a 5.0 times limit
- Production in the third quarter averaged 82,198 barrels of oil
equivalent per day. The majority of the difference relative
to the second quarter was the result of dispositions closed in late
June. Third quarter volumes were also impacted by approximately
1,000 barrels of oil equivalent per day of third party
infrastructure constraints, including the TransCanada Pipeline and
Alliance Pipeline systems. Additionally, certain turnarounds
had been deferred from the second quarter for operational
reasons
- Third quarter funds flow from operations, which excludes
foreign exchange hedge monetizations/settlements, realized foreign
exchange losses and restructuring charges was $45 million ($0.09
per share). Despite WTI prices of approximately US$46 per barrel, resulting in Edmonton Par
prices of approximately $56 per
barrel, our field netbacks including risk management activities
remained strong at approximately $14
per boe
- Capital expenditures were $116
million during the third quarter of 2015, with our
development program selectively focused on the Viking and Cardium
plays
- In the third quarter of 2015, we recorded non-cash impairment
charges of $435 million primarily
related to certain non-core properties in the Fort St. John area of northeastern
British Columbia and in the
Swan Hills and Wainwright areas of Alberta. This was mainly due to a decline in
forecasted commodity prices compared to December 31, 2014
- Additionally, as a result of entering into definitive sales
agreements related to the Mitsue and Weyburn transactions, we recorded non-cash
impairment charges of $399 million on
these two transactions as the book value of these assets exceeded
the fair value received
Select Metrics in Core Areas
The table below outlines select metrics for our core areas for
the nine months ended September 30,
2015 and excluding the impact of hedging:
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Area |
Select
Metrics - Nine Months Ended September 30, 2015 |
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Production |
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Liquids
Weighting |
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Operating Cost |
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Netback |
Cardium |
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29,000 boe/d |
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65% |
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$15.50/boe |
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$19.50/boe |
Greater Viking |
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18,500 boe/d |
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86% |
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$16.50/boe |
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$21.50/boe |
Slave Point |
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5,500 boe/d |
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96% |
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$19.00/boe |
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$25.50/boe |
Total Core |
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53,000 boe/d |
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76% |
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$16.00/boe |
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$21.00/boe |
Operated Development Activity
Greater Viking
During the quarter, we drilled 33 wells in the Dodsland area, completed 21 wells and brought
19 on production. We expect to continue running at a one rig
pace in Dodsland. The
quarter also revealed some initial positive results from a nine
section water flood in the Dodsland Viking play, which began
injecting water in February. The water flood area gas to oil
ratio is improving and we have now seen both an arrest of the oil
decline and a trend of increasing oil production that is on target
with our water flood area development forecast. Facilities and
source water are in place to increase injection volumes in Q4 2015,
with the potential to expand the water flood area in the
future.
Results on some of our recent farmouts as well
as regional peer activity has been encouraging and is reflective of
the significant Viking potential we hold at our existing lands
within our Greater Viking core area. We continue to assess
our opportunities throughout the Greater Viking core area where our
plans include further technical evaluation of the prospectivity of
other zones where we hold rights, such as the Mannville and Bakken.
Cardium
We were running five rigs in the Cardium at the end of July.
Currently, we are down to two rigs, both of which we expect to be
finished their current pads by mid-November. We have a
significant number of Cardium wells drilled with follow on
activities to be completed. We anticipate to bring on 14 (8.9
net) Cardium wells through the fourth quarter.
Looking at the results of the Cardium drilling
program in the second half of the year, we believe that the
significant technical work, particularly regarding pressure regimes
within the reservoir, has improved our well results. In
October, we brought on three wells, two in the Crimson Lake area
and one in the J-Lease area, that each delivered in excess of 500
barrels of equivalent per day over a three day period.
Specifically, the well in the J-Lease area delivered rates greater
than 3,000 barrels of oil per day over a 24 hour period.
While we continue to expect variability in our Cardium drilling
results, we believe these wells reinforce our confidence in our
core Cardium position as well as our ability to high grade
locations.
We will continue to evaluate and prioritize our
future inventory. Additionally, we are evaluating the
potential of additional horizons throughout our land base,
including up hole opportunities in the Belly River as well as
deeper horizons in the Rock Creek
and the Mannville.
The table below provides a summary of our
operational activity in our core areas during the third
quarter:
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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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Gross |
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Net |
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Gross |
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Net |
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Gross |
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Net |
Cardium |
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26.0 |
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22.1 |
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9.0 |
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6.8 |
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8.0 |
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5.7 |
Greater Viking |
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33.0 |
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33.0 |
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21.0 |
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21.0 |
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19.0 |
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19.0 |
Slave Point |
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0.0 |
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0.0 |
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0.0 |
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0.0 |
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0.0 |
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0.0 |
Total Core |
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59.0 |
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55.1 |
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30.0 |
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27.8 |
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27.0 |
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24.7 |
Senior Debt Compliance
We continue to remain in compliance with all our
financial covenants, including the Senior Debt to EBITDA covenant
that was 4.3 times at September 30,
relative to a 5.0 times limit. We will continue to pursue our
strategy of reducing absolute debt and leverage levels through
further dispositions of non-core assets. We currently have
approximately $650 million of undrawn
capacity under our $1.2 billion
syndicated bank facility. Unlike many of our industry peers,
availability under our syndicated bank facility is not based on a
borrowing base calculation and therefore is not subject to
redeterminations prior to its scheduled maturity in May 2019.
Additionally, we believe that the monetization
of our existing foreign exchange hedges is a key lever in remaining
within existing covenant limits. At the end of the quarter,
these contracts held a positive mark to market value of
approximately $75 million.
Given our current projections of the 2015 year end Senior Debt to
EBITDA covenant, which incorporate the benefit of the recently
announced dispositions, we are now expecting to monetize the
majority of these contracts in first half of 2016 if commodity
prices and exchange rates remain at current levels.
The table below outlines the calculation of our
Senior Debt to EBITDA covenant as at the end of the third
quarter:
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Twelve
months ended |
(millions, except ratios) |
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Sep 30, 2015 |
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Funds Flow |
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$310 |
Financing |
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$160 |
Realized gain on foreign exchange hedges on
prepayments |
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($9) |
Realized foreign exchange loss - debt
prepayments |
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$59 |
Restructuring expenses |
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$32 |
EBITDA |
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$552 |
EBITDA contribution from assets sold
(1) |
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($32) |
EBITDA as defined by debt covenants |
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$520 |
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Total senior notes |
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$1,742 |
Syndicated bank facility advances |
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$507 |
Total long-term debt |
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$2,249 |
Letters of credit - financial (2) |
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$14 |
Total senior debt |
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$2,263 |
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Senior debt to EBITDA |
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4.3x |
(1) |
Consists of EBITDA contributions from assets that have been
disposed of in the prior 12 months. |
(2) |
Letters of credit that are classified as financial are included
in the
Senior debt calculation per the debt agreements. |
Updated Hedging Positions
Our hedging program continues to help reduce the
volatility of our funds flow from operations, and thereby improve
our ability to align capital programs going forward. We
target having hedges in place for approximately 25% to 40% of our
crude oil exposure, net of royalties, and 40% to 50% of our gas
exposure, net of royalties in the current year. We are
layering on positions in a systematic fashion, subject to market
conditions. We have reached the lower end of our crude oil
and natural gas target levels for the remainder of 2015 and
continue to increase our 2016 position over time. We have
also started extending positions out through 2017 in order to
maintain the length of our hedging program.
Our existing positions as of November
4 are as follows:
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Q4 2015 |
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Q1 2016 |
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Q2 2016 |
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Q3 2016 |
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Q4 2016 |
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Q1 2017 |
Oil Volume (bbl/d) |
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12,500 |
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9,500 |
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7,000 |
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6,000 |
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6,000 |
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3,000 |
C$ WTI Price (C$/bbl) |
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$72.57 |
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$72.83 |
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$70.95 |
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$71.07 |
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$71.24 |
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$69.37 |
Gas Volume (mmcf/d) |
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70 |
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19 |
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19 |
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19 |
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19 |
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AECO Price (C$/mcf) |
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$2.86 |
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$3.08 |
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$3.08 |
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$3.08 |
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$3.08 |
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2015 Guidance
We have maintained the midpoint of our annual
production guidance, but refined the range to 85,000 - 87,000 boe/d
from 84,000 - 88,000 boe/d. Our capital budget for the year
remains unchanged at $500
million. We continue to expect our operating costs for
the year to be between $19.25/boe and
$19.75/boe with our G&A for the
year to be between $2.80/boe and
$3.05/boe.
Conference Call and Webcast Details
A conference call and webcast presentation will be held to
discuss our third quarter results at 9:00am
MT (11:00am ET) on
Thursday, November 5, 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=1063899&s=1&k=931DE006B8CB2FE5CB59D1E4782DA683
Forward-Looking Statements
Certain statements contained in this press
release 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:
actions that will be taken in order to prevent the Company from
taking on additional debt, the closing of non-core asset
dispositions and the use of proceeds towards outstanding debt,
continuing the divestiture process on additional non-core assets,
being in compliance with all financial covenants and that
additional headroom will be created once proceeds from non-core
asset disposition are applied against the debt, finding ways to
mitigate third party pipeline access issues, decreasing activity to
reach our target pace and resulting capital run rate, expected rig
numbers, the state of the Company today versus the start of the
quarter and building to operate in the 'lower for longer'
environment, positioning the Company for success in the future,
water flooding activities in Q4 2015 and the potential to expand
the water flood area in the future, assessing different
opportunities in areas and other zones that we hold rights in,
expectations for current pads finishing dates, anticipating when
different wells would be brought online, the reasons behind certain
well results, continuing to evaluate and prioritize our future
inventory, the belief that the monetization of our existing foreign
exchange hedges is a key lever in remaining within existing
covenant limits and that it will be done in the first half of 2016
if commodity prices and exchange rates remain at current levels,
that certain hedges produce benefits for the Company and the range
for the annual production guidance and expectations for our
operation costs and G&A. The forward-looking information is
based on certain key expectations and assumptions made by Penn
West, including expectations and assumptions concerning: prevailing
and future commodity prices and currency exchange rates; applicable
royalty rates and tax laws; interest rates; future well production
rates and reserve volumes; operating costs; the timing of receipt
of regulatory approvals; the performance of existing wells; the
success obtained in drilling new wells; anticipated timing and
results of capital expenditures; the sufficiency of budgeted
capital expenditures in carrying out planned activities; the
timing, location and extent of future drilling operations; the
successful completion of acquisitions and dispositions; the
availability and cost of labour and services; the state of the
economy and the exploration and production business; the
availability and cost of financing; and ability to market oil and
natural gas successfully.
Although Penn West believes that the
expectations and assumptions on which such forward-looking
information is based are reasonable, undue reliance should not be
placed on the forward-looking information because Penn West can
give no assurances that they will prove to be correct. Since
forward-looking information addresses future events and conditions,
by its very nature it involves inherent risks and uncertainties.
Actual results could differ materially from those currently
anticipated due to a number of factors and risks. These include,
but are not limited to: the risks associated with the oil and gas
industry in general such as operational risks in development,
exploration and production; delays or changes in plans with respect
to exploration or development projects or capital expenditures; the
uncertainty of estimates and projections relating to reserves,
production, costs and expenses; health, safety and environmental
risks; commodity price and exchange rate fluctuations; interest
rate fluctuations; marketing and transportation; loss of markets;
environmental risks; competition; incorrect assessment of the value
of acquisitions; failure to complete or realize the anticipated
benefits of acquisitions or dispositions; ability to access
sufficient capital from internal and external sources; failure to
obtain required regulatory and other approvals; reliance on third
parties; and changes in legislation, including but not limited to
tax laws, royalties and environmental regulations. Readers are
cautioned that the foregoing list of factors is not exhaustive.
Additional information on these and other
factors that could affect Penn West, or its operations or financial
results, are included in the Company's most recently filed
Management's Discussion and Analysis (See "Forward-Looking
Statements" therein) , Annual Information Form (See "Risk Factors"
and "Forward-Looking Statements" therein) and other reports on file
with applicable securities regulatory authorities and may be
accessed through the SEDAR website (www.sedar.com) or Penn West's
website.
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.
See also "Forward-Looking Statements" in the
attached Management's Discussion and Analysis.
Additional Reader Advisories
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.
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, EBITDA and gross revenues. Such terms
are explained under the heading "Non-GAAP Measures" in the attached
Management's Discussion and Analysis. 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS
For the three and nine months ended September 30, 2015
This management's discussion and analysis of
financial condition and results of operations ("MD&A") of Penn
West Petroleum Ltd. ("Penn West", the "Company", "we", "us", "our")
should be read in conjunction with the Company's unaudited interim
condensed consolidated financial statements for the three and nine
months ended September 30, 2015 (the
"Consolidated Financial Statements") and the Company's audited
consolidated financial statements and MD&A for the year ended
December 31, 2014. The date of this
MD&A is November 4, 2015. All
dollar amounts contained in this MD&A are expressed in millions
of Canadian dollars unless noted otherwise.
Certain financial measures such as 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, EBITDA and
gross revenues included in this MD&A do not have a standardized
meaning prescribed by International Financial Reporting Standards
("IFRS") and therefore are considered non-GAAP measures;
accordingly, they may not be comparable to similar measures
provided by other issuers. This MD&A also contains oil and gas
information and forward-looking statements. Please see the
Company's disclosure under the headings "Non-GAAP Measures", "Oil
and Gas Information", and "Forward-Looking Statements" included at
the end of this MD&A.
Quarterly Financial Summary
(millions, except per share and production amounts)(unaudited)
|
|
|
Sep 30 |
|
|
June
30 |
|
|
Mar. 31 |
|
|
Dec.
31 |
|
|
Sep.
30 |
|
|
June
30 |
|
|
Mar.
31 |
|
|
Dec.
31 |
Three months ended
(1) |
|
|
2015 |
|
|
2015 |
|
|
2015 |
|
|
2014 |
|
|
2014 |
|
|
2014 |
|
|
2014 |
|
|
2013 |
Gross revenues (2) |
|
$ |
295 |
|
$ |
360 |
|
$ |
340 |
|
$ |
473 |
|
$ |
589 |
|
$ |
656 |
|
$ |
673 |
|
$ |
622 |
Funds flow from
operations |
|
|
45 |
|
|
82 |
|
|
74 |
|
|
142 |
|
|
232 |
|
|
306 |
|
|
273 |
|
|
229 |
|
Basic per share |
|
|
0.09 |
|
|
0.16 |
|
|
0.15 |
|
|
0.29 |
|
|
0.47 |
|
|
0.62 |
|
|
0.56 |
|
|
0.47 |
|
Diluted per share |
|
|
0.09 |
|
|
0.16 |
|
|
0.15 |
|
|
0.29 |
|
|
0.47 |
|
|
0.62 |
|
|
0.56 |
|
|
0.47 |
Funds flow |
|
|
14 |
|
|
47 |
|
|
112 |
|
|
137 |
|
|
231 |
|
|
298 |
|
|
269 |
|
|
203 |
|
Basic per share |
|
|
0.03 |
|
|
0.09 |
|
|
0.22 |
|
|
0.28 |
|
|
0.47 |
|
|
0.61 |
|
|
0.55 |
|
|
0.42 |
|
Diluted per share |
|
|
0.03 |
|
|
0.09 |
|
|
0.22 |
|
|
0.28 |
|
|
0.47 |
|
|
0.60 |
|
|
0.55 |
|
|
0.42 |
Net income (loss) |
|
|
(764) |
|
|
(28) |
|
|
(248) |
|
|
(1,772) |
|
|
(15) |
|
|
143 |
|
|
(89) |
|
|
(675) |
|
Basic per share |
|
|
(1.52) |
|
|
(0.06) |
|
|
(0.49) |
|
|
(3.57) |
|
|
(0.03) |
|
|
0.29 |
|
|
(0.18) |
|
|
(1.38) |
|
Diluted per share |
|
|
(1.52) |
|
|
(0.06) |
|
|
(0.49) |
|
|
(3.57) |
|
|
(0.03) |
|
|
0.29 |
|
|
(0.18) |
|
|
(1.38) |
Dividends declared |
|
|
5 |
|
|
5 |
|
|
5 |
|
|
70 |
|
|
69 |
|
|
69 |
|
|
69 |
|
|
68 |
Per share |
|
$ |
0.01 |
|
$ |
0.01 |
|
$ |
0.01 |
|
$ |
0.14 |
|
$ |
0.14 |
|
$ |
0.14 |
|
$ |
0.14 |
|
$ |
0.14 |
Production |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquids (bbls/d) (3) |
|
|
55,323 |
|
|
63,222 |
|
|
65,343 |
|
|
64,124 |
|
|
64,687 |
|
|
69,409 |
|
|
71,638 |
|
|
78,874 |
Natural gas (mmcf/d) |
|
|
161 |
|
|
168 |
|
|
177 |
|
|
198 |
|
|
217 |
|
|
224 |
|
|
239 |
|
|
275 |
Total (boe/d) |
|
|
82,198 |
|
|
91,164 |
|
|
94,905 |
|
|
97,143 |
|
|
100,839 |
|
|
106,706 |
|
|
111,461 |
|
|
124,752 |
(1) |
Certain comparative figures have been reclassified to
correspond with current period presentation. |
(2) |
Includes realized gains and losses on commodity contracts and
excludes gains and losses on foreign exchange hedges. |
(3) |
Includes crude oil and natural gas liquids. |
Calculation of Funds Flow/ Funds Flow from
Operations
(millions, except per share amounts) |
|
Three months ended
September 30 |
|
|
Nine
months ended
September 30 |
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
Cash flow from operating
activities |
|
$ |
59 |
|
|
$ |
292 |
|
|
$ |
148 |
|
|
$ |
728 |
Change in non-cash working
capital |
|
|
(54) |
|
|
|
(73) |
|
|
|
- |
|
|
|
38 |
Decommissioning expenditures |
|
|
9 |
|
|
|
12 |
|
|
|
25 |
|
|
|
32 |
Funds flow |
|
|
14 |
|
|
|
231 |
|
|
|
173 |
|
|
|
798 |
Monetization of foreign exchange
contracts |
|
|
- |
|
|
|
- |
|
|
|
(63) |
|
|
|
- |
Settlements of normal course foreign
exchange contracts |
|
|
(6) |
|
|
|
- |
|
|
|
(31) |
|
|
|
(2) |
Realized foreign exchange loss - debt
prepayments |
|
|
15 |
|
|
|
- |
|
|
|
59 |
|
|
|
- |
Realized foreign exchange loss - debt
maturities |
|
|
- |
|
|
|
- |
|
|
|
36 |
|
|
|
3 |
Restructuring charges |
|
|
22 |
|
|
|
1 |
|
|
|
27 |
|
|
|
12 |
Funds flow from Operations |
|
$ |
45 |
|
|
$ |
232 |
|
|
$ |
201 |
|
|
$ |
811 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share - funds flow |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic per share |
|
$ |
0.03 |
|
|
$ |
0.47 |
|
|
$ |
0.34 |
|
|
$ |
1.62 |
|
Diluted per share |
|
|
0.03 |
|
|
|
0.47 |
|
|
|
0.34 |
|
|
|
1.62 |
Per share - funds flow from
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic per share |
|
|
0.09 |
|
|
|
0.47 |
|
|
|
0.40 |
|
|
|
1.65 |
|
Diluted per share |
|
$ |
0.09 |
|
|
$ |
0.47 |
|
|
$ |
0.40 |
|
|
$ |
1.65 |
The decrease in funds flow compared to the prior
year is mainly due to lower revenues as a result of a weaker
commodity price environment and lower production volumes due to
asset dispositions.
During the third quarter of 2015, the Company
settled US$70 million of foreign
exchange forward contracts on senior note debt prepayments as rates
were hedged between the prepayment date and settlement date.
Additionally, in the third quarter, Penn West repaid US$56 million, $6
million, £2 million and €1
million of senior notes as a result of at par prepayment offers
made to its noteholders using asset disposition proceeds, together
with a concurrent pro rata repayment of $18
million on its syndicated bank facility. As the Canadian
dollar has weakened relative to the US dollar from the issue date
of the senior notes to the settlement date, a realized foreign
exchange loss was recorded.
For the first nine months of 2015, the Company
monetized a total of US$315 million
of foreign exchange forward contracts on senior notes in addition
to monetizing its outstanding natural gas hedges in the first
quarter of 2015 (subsequent to the monetization, the Company
entered into new natural gas contracts). It also settled
US$147 million of foreign exchange
forward contracts as part of normal course maturities.
During the first nine months of 2015, Penn West
repaid senior notes in an aggregate amount of US$193 million and $50
million as part of normal maturities and additional amounts
of US$258 million, $24 million, £10
million and €2 million of senior notes were prepaid as a
result of the offers made at par to its noteholders using asset
disposition proceeds. In 2015, Penn West also repaid a total of
$56 million outstanding under its
syndicated bank facility using asset disposition proceeds.
Business Strategy
During the third quarter of 2015, Penn West
continued to reduce debt and strengthen its balance sheet in spite
of the current commodity price environment by executing on a number
of strategies including:
- a 35 percent reduction in its workforce;
- suspension of the dividend program and a reduction in board
compensation;
- the plan to limit development capital expenditures to remain
within its funds flow from operations by the end of 2015; and
- further asset disposition activity by entering into two
definitive sales agreements for total proceeds of $398 million, prior to closing adjustments.
As the Company moves forward, it will continue
to build on the efficiencies it has gained over the past several
months and look for further opportunities to reduce its overall
cost structure. It will also pursue additional non-core asset
disposition initiatives as a means to strengthen its balance sheet
and further focus its asset portfolio. Penn West has taken a number
of critical steps over the past 18 months which have increased its
financial flexibility and demonstrated commitment to long-term
sustainability.
Business Environment
The following table outlines quarterly averages
for benchmark prices and our realized prices for the previous five
quarters.
|
|
|
Q3 2015 |
|
|
|
Q2 2015 |
|
|
|
Q1 2015 |
|
|
|
Q4 2014 |
|
|
|
Q3 2014 |
Benchmark prices |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WTI crude oil (US$/bbl) |
|
$ |
46.43 |
|
|
$ |
57.94 |
|
|
$ |
48.63 |
|
|
$ |
73.15 |
|
|
$ |
97.31 |
|
Edm mixed sweet par price (CAD$/bbl) |
|
|
56.17 |
|
|
|
67.63 |
|
|
|
51.76 |
|
|
|
75.58 |
|
|
|
96.98 |
|
NYMEX Henry Hub ($US/mcf) |
|
|
2.77 |
|
|
|
2.64 |
|
|
|
2.98 |
|
|
|
4.00 |
|
|
|
4.06 |
|
AECO Monthly Index (CAD$/mcf) |
|
|
2.85 |
|
|
|
2.66 |
|
|
|
2.95 |
|
|
|
4.00 |
|
|
|
4.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Penn West average sales price
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Light oil (per bbl) |
|
|
52.60 |
|
|
|
64.56 |
|
|
|
49.82 |
|
|
|
72.82 |
|
|
|
94.63 |
|
NGL (per bbl) |
|
|
15.24 |
|
|
|
17.40 |
|
|
|
20.31 |
|
|
|
38.88 |
|
|
|
52.95 |
|
Heavy oil (per bbl) |
|
|
31.20 |
|
|
|
46.44 |
|
|
|
30.20 |
|
|
|
54.35 |
|
|
|
72.59 |
|
Total liquids (per bbl) |
|
|
44.83 |
|
|
|
55.85 |
|
|
|
42.97 |
|
|
|
65.48 |
|
|
|
85.27 |
|
Natural gas (per mcf) |
|
|
2.99 |
|
|
|
2.78 |
|
|
|
3.08 |
|
|
|
3.94 |
|
|
|
4.33 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benchmark differentials |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WTI - Edm Light Sweet ($US/bbl) |
|
|
(3.42) |
|
|
|
(2.86) |
|
|
|
(6.80) |
|
|
|
(6.33) |
|
|
|
(8.09) |
|
WTI - WCS Heavy ($US/bbl) |
|
$ |
(13.27) |
|
|
$ |
(11.59) |
|
|
$ |
(14.73) |
|
|
$ |
(14.23) |
|
|
$ |
(20.18) |
(1) |
Excludes the impact of realized hedging gains or losses. |
Crude Oil
After a brief recovery late in the second
quarter of 2015, crude oil prices continued their downward trend
through the third quarter as it became apparent that supply was not
declining as rapidly as many had forecasted and concerns remained
about demand growth. Also contributing to the decrease were
declining refinery utilizations which pushed WTI below US$40 per barrel for a brief period before
recovering to US$45 per barrel late
in the quarter.
Canadian light and heavy oil differentials
experienced high volatility during the third quarter as a result of
both supply disruptions and unscheduled refinery outages. Light oil
differentials ranged from US$0.43 per
barrel to US$6.03 per barrel off WTI
while heavy oil differentials fluctuated between US$7.45 per barrel to US$18.82 per barrel off WTI.
As we enter the fourth quarter of 2015 there is
evidence that North American production is on the decline and
concerns regarding at capacity storage levels during the fall
refinery turnaround have decreased. However, uncertainties
regarding demand growth and the potential for incremental supply,
particularly from Iran, persist
and will likely continue to challenge prices into 2016.
Penn West entered a number of financial hedging
positions during the third quarter of 2015. As at September 30, 2015, the Company has the following
contracts in place:
Reference Price |
|
|
Term |
|
|
Price
($/Barrel) |
|
|
Volume
(Barrels/day) |
WTI |
|
|
Oct 2015 - Dec 2015 |
|
|
CAD $72.57 |
|
|
12,500 |
WTI |
|
|
Jan 2016 - Mar 2016 |
|
|
CAD $72.83 |
|
|
9,500 |
WTI |
|
|
Apr 2016 - Jun 2016 |
|
|
CAD $71.98 |
|
|
6,000 |
WTI |
|
|
Jul 2016 - Dec 2016 |
|
|
CAD $72.08 |
|
|
5,000 |
Subsequent to September
30, 2015, the Company entered into additional crude oil
swaps on the following:
- 1,000 barrels per day of production in the second quarter of
2016 at WTI CAD$65.00 per
barrel,
- 1,000 barrels per day of production in the third quarter of
2016 at WTI CAD$66.05 per
barrel,
- 1,000 barrels per day of production in the fourth quarter of
2016 at WTI CAD$67.05 per
barrel,
- 3,000 barrels per day of production in the first quarter of
2017 at WTI CAD$69.37 per
barrel,
Natural Gas
NYMEX Henry Hub natural gas price strengthened
in the beginning of the quarter as increasing temperatures and
nuclear plant turnarounds increased the demand for natural
gas. However, late in the quarter it became evident that
continued strong supply and moderating demand were causing storage
inventory to build above the five month average heading into the
winter heating season. As a result, NYMEX pricing softened
throughout the month of September trading at US$2.50 per MMBtu at the end of the quarter.
AECO pricing followed the same pattern as NYMEX
and increased early in the quarter then softened throughout
September. This was offset to some degree by a strengthening basis
differential between NYMEX and AECO due to ongoing restrictions on
the TCPL system which reduced available supply. If these
restrictions are lifted, this may result in downward pressure on
AECO prices in the Fall season.
At September 30,
2015, Penn West had 70,000 mcf per day of 2015 production
hedged at an average price of $2.86
per mcf and 19,000 mcf per day of 2016 production hedged at an
average price of $3.08 per mcf.
Average Sales Prices
|
|
|
Three months ended
September 30 |
Nine months ended
September 30 |
|
|
|
2015 |
|
|
|
2014 |
|
|
%
change |
|
|
|
2015 |
|
|
|
2014 |
|
|
%
change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Light oil (per bbl) |
|
|
$ |
52.60 |
|
|
$ |
94.63 |
|
|
(44) |
|
|
$ |
55.72 |
|
|
$ |
98.10 |
|
|
(43) |
Commodity gain (loss) (per bbl)
(1) |
|
|
|
5.82 |
|
|
|
- |
|
|
100 |
|
|
|
2.09 |
|
|
|
(2.40) |
|
|
>(100) |
Light oil net (per bbl) |
|
|
|
58.42 |
|
|
|
94.63 |
|
|
(38) |
|
|
|
57.81 |
|
|
|
95.70 |
|
|
(40) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Heavy oil (per bbl) |
|
|
|
31.20 |
|
|
|
72.59 |
|
|
(57) |
|
|
|
35.91 |
|
|
|
73.93 |
|
|
(51) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NGL (per bbl) |
|
|
|
15.24 |
|
|
|
52.95 |
|
|
(71) |
|
|
|
17.81 |
|
|
|
58.03 |
|
|
(69) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas (per mcf) |
|
|
|
2.99 |
|
|
|
4.33 |
|
|
(31) |
|
|
|
2.95 |
|
|
|
5.03 |
|
|
(41) |
Commodity gain (loss) (per mcf)
(1) |
|
|
|
0.03 |
|
|
|
(0.30) |
|
|
>(100) |
|
|
|
0.48 |
|
|
|
(0.40) |
|
|
>(100) |
Natural gas net (per mcf) |
|
|
|
3.02 |
|
|
|
4.03 |
|
|
(25) |
|
|
|
3.43 |
|
|
|
4.63 |
|
|
(26) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average (per boe) |
|
|
|
36.05 |
|
|
|
64.01 |
|
|
(44) |
|
|
|
38.45 |
|
|
|
67.91 |
|
|
(43) |
Commodity gain (loss) (per boe)
(1) |
|
|
|
2.83 |
|
|
|
(0.65) |
|
|
>(100) |
|
|
|
1.91 |
|
|
|
(1.91) |
|
|
>(100) |
Weighted average net (per
boe) |
|
|
$ |
38.88 |
|
|
$ |
63.36 |
|
|
(39) |
|
|
$ |
40.36 |
|
|
$ |
66.00 |
|
|
(39) |
(1) |
Realized risk management gains and losses on commodity
contracts are included in gross revenues. |
RESULTS OF OPERATIONS
Production
|
|
|
Three months ended
September 30 |
Nine months ended
September 30 |
Daily production |
|
|
2015 |
|
|
2014 |
|
|
%
change |
|
|
2015 |
|
|
2014 |
|
|
%
change |
Light oil (bbls/d) |
|
|
39,052 |
|
|
44,021 |
|
|
(11) |
|
|
43,009 |
|
|
47,173 |
|
|
(9) |
Heavy oil (bbls/d) |
|
|
11,153 |
|
|
13,012 |
|
|
(14) |
|
|
11,992 |
|
|
13,251 |
|
|
(10) |
NGL (bbls/d) |
|
|
5,118 |
|
|
7,654 |
|
|
(33) |
|
|
6,258 |
|
|
8,128 |
|
|
(23) |
Natural gas (mmcf/d) |
|
|
161 |
|
|
217 |
|
|
(26) |
|
|
169 |
|
|
226 |
|
|
(25) |
Total production (boe/d) |
|
|
82,198 |
|
|
100,839 |
|
|
(18) |
|
|
89,376 |
|
|
106,296 |
|
|
(16) |
Penn West's production levels were lower than
the comparative periods mainly due to non-core property
dispositions that were closed during the fourth quarter of 2014 and
in 2015 as the Company made progress on its planned disposition
strategy and strengthened its balance sheet.
Netbacks
|
Three months ended
September 30 |
|
2015 |
2014 |
|
|
Light Oil and
NGL |
|
|
Heavy Oil |
|
|
Natural Gas |
|
|
Combined |
|
|
Combined |
|
|
(bbl) |
|
|
(bbl) |
|
|
(mcf) |
|
|
(boe) |
|
|
(boe) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating netback: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales price |
|
$ |
48.28 |
|
|
$ |
31.20 |
|
|
$ |
2.99 |
|
|
$ |
36.05 |
|
|
$ |
64.01 |
|
Commodity gain (loss) (1) |
|
|
5.15 |
|
|
|
- |
|
|
|
0.03 |
|
|
|
2.83 |
|
|
|
(0.65) |
|
Royalties |
|
|
(4.50) |
|
|
|
(2.16) |
|
|
|
- |
|
|
|
(2.72) |
|
|
|
(8.99) |
|
Transportation |
|
|
(1.05) |
|
|
|
(2.28) |
|
|
|
(0.35) |
|
|
|
(1.55) |
|
|
|
(1.12) |
Operating costs |
|
|
(24.77) |
|
|
|
(23.32) |
|
|
|
(2.25) |
|
|
|
(20.89) |
|
|
|
(20.74) |
Netback |
|
$ |
23.11 |
|
|
$ |
3.44 |
|
|
$ |
0.42 |
|
|
$ |
13.72 |
|
|
$ |
32.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(bbls/d) |
|
|
|
(bbls/d) |
|
|
|
(mmcf/d) |
|
|
|
(boe/d) |
|
|
|
(boe/d) |
Production |
|
|
44,169 |
|
|
|
11,153 |
|
|
|
161 |
|
|
|
82,198 |
|
|
|
100,839 |
(1) |
Realized risk management gains and losses on commodity
contracts. |
During the third quarter of 2015, the Company's
netbacks were affected by a continued decline in commodity prices,
particularly, heavy oil. The reduction in crude oil prices was
partially offset by the weakening of the Canadian dollar during the
third quarter.
|
Nine months ended
September 30 |
|
2015 |
2014 |
|
|
Light Oil and
NGL |
|
|
Heavy Oil |
|
|
Natural Gas |
|
|
Combined |
|
|
Combined |
|
|
(bbl) |
|
|
(bbl) |
|
|
(mcf) |
|
|
(boe) |
|
|
(boe) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating netback: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales price (1) |
|
$ |
50.91 |
|
|
$ |
35.91 |
|
|
$ |
2.95 |
|
|
$ |
38.45 |
|
|
$ |
67.91 |
|
Commodity gain (loss) (2) |
|
|
1.82 |
|
|
|
- |
|
|
|
0.48 |
|
|
|
1.91 |
|
|
|
(1.91) |
|
Royalties |
|
|
(5.41) |
|
|
|
(3.54) |
|
|
|
(0.26) |
|
|
|
(3.95) |
|
|
|
(10.23) |
|
Transportation |
|
|
(1.00) |
|
|
|
(1.89) |
|
|
|
(0.33) |
|
|
|
(1.43) |
|
|
|
(1.17) |
|
Operating costs |
|
|
(23.28) |
|
|
|
(20.82) |
|
|
|
(2.00) |
|
|
|
(19.41) |
|
|
|
(18.75) |
Netback |
|
$ |
23.04 |
|
|
$ |
9.66 |
|
|
$ |
0.84 |
|
|
$ |
15.57 |
|
|
$ |
35.85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(bbls/d) |
|
|
|
(bbls/d) |
|
|
|
(mmcf/d) |
|
|
|
(boe/d) |
|
|
|
(boe/d) |
Production |
|
|
49,267 |
|
|
|
11,992 |
|
|
|
169 |
|
|
|
89,376 |
|
|
|
106,296 |
(1) |
Excluded from the netback calculation in 2015 was $10 million
of other income. |
(2) |
Realized risk management gains and losses on commodity
contracts. |
Production Revenues
Revenues from the sale of oil, NGL and natural
gas consisted of the following:
|
Three months ended
September 30 |
Nine months ended
September 30 |
(millions) |
|
2015 |
|
|
2014 |
|
|
%
change |
|
|
2015 |
|
|
2014 |
|
|
%
change |
Light oil and NGL |
|
$ |
218 |
|
|
$ |
422 |
|
|
(48) |
|
|
$ |
719 |
|
|
$ |
1,364 |
|
|
(47) |
Heavy oil |
|
|
32 |
|
|
|
87 |
|
|
(63) |
|
|
|
118 |
|
|
|
267 |
|
|
(56) |
Natural gas |
|
|
45 |
|
|
|
80 |
|
|
(44) |
|
|
|
158 |
|
|
|
287 |
|
|
(45) |
Gross revenues (1) |
|
$ |
295 |
|
|
$ |
589 |
|
|
(50) |
|
|
$ |
995 |
|
|
$ |
1,918 |
|
|
(48) |
(1) |
Includes realized risk management gains and losses on commodity
contracts which totaled $22 million for the three months ended
September 30, 2015 (2014 - $6 million loss) and $47 million for the
nine months ended September 30, 2015 (2014 - $55 million
loss). |
Gross revenues declined from 2014 as a result of
a significant decrease in the commodity price environment and lower
production volumes due to non-core asset dispositions that were
closed in 2014 and 2015.
Reconciliation of Change in Production
Revenues
(millions) |
|
|
|
|
|
Gross revenues - January 1 - September 30,
2014 |
|
|
|
$ |
1,918 |
Decrease in light oil and NGL production |
|
|
|
|
(149) |
Decrease in light oil and NGL prices
(1) |
|
|
|
|
(496) |
Decrease in heavy oil production |
|
|
|
|
(25) |
Decrease in heavy oil prices |
|
|
|
|
(124) |
Decrease in natural gas production |
|
|
|
|
(73) |
Decrease in natural gas prices (1) |
|
|
|
|
(56) |
Gross revenues - January 1 - September 30,
2015 |
|
|
|
$ |
995 |
(1) |
Includes realized risk management gains and losses on commodity
contracts. |
Royalties
|
Three months ended
September 30 |
Nine months ended
September 30 |
|
|
2015 |
|
|
2014 |
|
|
%
change |
|
|
2015 |
|
|
2014 |
|
|
%
change |
Royalties (millions) |
|
$ |
20 |
|
|
$ |
83 |
|
|
(76) |
|
|
$ |
96 |
|
|
$ |
297 |
|
|
(68) |
Average royalty rate (1) |
|
|
7% |
|
|
|
14% |
|
|
(50) |
|
|
|
10% |
|
|
|
15% |
|
|
(33) |
$/boe |
|
$ |
2.72 |
|
|
$ |
8.99 |
|
|
(70) |
|
|
$ |
3.95 |
|
|
$ |
10.23 |
|
|
(61) |
(1) |
Excludes effects of risk management activities. |
Royalties have declined in 2015 from the
comparative periods due to decreases in the commodity price
environment and the impact of asset disposition activity completed
in 2014 and 2015.
Expenses
|
Three months ended
September 30 |
Nine months ended
September 30 |
(millions) |
2015 |
2014 |
%
change |
2015 |
2014 |
%
change |
Operating |
$ |
159 |
$ |
193 |
(18) |
$ |
474 |
$ |
544 |
(13) |
Transportation |
|
12 |
|
11 |
9 |
|
35 |
|
34 |
3 |
Financing |
|
40 |
|
37 |
8 |
|
120 |
|
117 |
3 |
Share-based compensation |
$ |
(4) |
$ |
1 |
>(100) |
$ |
3 |
$ |
18 |
(83) |
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
September 30 |
Nine months ended
September 30 |
(per boe) |
2015 |
2014 |
%
change |
2015 |
2014 |
%
change |
Operating |
$ |
20.89 |
$ |
20.74 |
1 |
$ |
19.41 |
$ |
18.75 |
4 |
Transportation |
|
1.55 |
|
1.12 |
38 |
|
1.43 |
|
1.17 |
22 |
Financing |
|
5.26 |
|
3.87 |
36 |
|
4.91 |
|
4.03 |
22 |
Share-based compensation |
$ |
(0.51) |
$ |
0.21 |
>(100) |
$ |
0.11 |
$ |
0.60 |
(82) |
Operating
In 2015, operating costs were lower than the
comparative periods as a result of asset disposition activity,
successful cost reduction initiatives which led to a decline in
maintenance and labour costs along with lower power costs mainly
due to a reduction in pool prices. Increases to operating costs on
a per boe basis primarily related to lower volumes due to asset
dispositions and lower capital spending levels.
Operating expenses for the first nine months of
2015 included a realized loss of $10
million (2014 - $1 million
loss) on electricity contracts and for the third quarter of 2015 a
realized loss of $6 million (2014 -
$1 million gain).
Financing
At September 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 September 30, 2015, the
Company had $648 million of unused
credit capacity available.
At September 30,
2015, the value of the Company's senior notes was
$1.7 billion (December 31, 2014 - $2.1
billion). There were no senior notes issued in either 2015
or 2014. During 2015, Penn West repaid senior notes in an aggregate
amount of US$193 million and
CAD$50 million as part of normal
maturities and additional amounts of US$258
million, CAD$24 million,
£10 million and €2 million of senior
notes were prepaid as a result of the offers made at par to its
noteholders using asset disposition proceeds. In 2015, Penn West
also repaid a total of CAD$56 million
outstanding under its syndicated bank facility using asset
disposition proceeds.
Summary information on our senior notes
outstanding is as follows at September 30,
2015:
|
|
|
|
Issue date |
|
|
Amount
(millions) |
|
|
Term |
|
|
Average
interest rate (1) |
|
|
Weighted
average
remaining
term |
2007 Notes |
|
|
|
May 31, 2007 |
|
|
US$243 |
|
|
8 - 15 years |
|
|
6.86% |
|
|
2.8 |
2008 Notes |
|
|
|
May 29, 2008 |
|
|
US$400, CAD$30 |
|
|
8 - 12 years |
|
|
7.24% |
|
|
2.2 |
UK Notes |
|
|
|
July 31, 2008 |
|
|
£47 |
|
|
10 years |
|
|
6.95%
(2) |
|
|
2.8 |
2009 Notes |
|
|
|
May 5, 2009 |
|
|
US$77(3), £19,
€8 |
|
|
5 - 10 years |
|
|
9.77%
(4) |
|
|
2.7 |
2010 Q1 Notes |
|
|
|
March 16, 2010 |
|
|
US$178 |
|
|
5 - 15 years |
|
|
6.69% |
|
|
4.1 |
2010 Q4 Notes |
|
|
|
December 2, 2010, January 4, 2011 |
|
|
US$140, CAD$45 |
|
|
5 - 15 years |
|
|
5.95% |
|
|
5.9 |
2011 Notes |
|
|
|
November 30, 2011 |
|
|
US$87, CAD$22 |
|
|
5 - 10 years |
|
|
5.49% |
|
|
4.5 |
(1) |
Average interest rate is calculated on September 30, 2015 prior
to the filing of the third quarter covenant calculations and 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 8.78 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. |
(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, at 10.49 percent and 10.52
percent, to 9.15 percent and 9.22 percent, respectively, and to fix
the exchange rate on repayment. |
Penn West's debt capital structure includes
short-term financings under its syndicated bank facility and
long-term instruments through its senior notes. Financing charges
in 2015 increased compared to 2014 as there was a higher balance
drawn under the syndicated bank facility during the third quarter
of 2015 compared to 2014.
Additionally, in May
2015 the Company finalized amended agreements with the
lenders under its syndicated bank facility and with the holders of
its senior notes which resulted in amended financial covenants and
led to increases in the fee structure. The fee structure on the
Company's senior notes will change during the amendment period (up
until March 30, 2017) as follows:
Consolidated Senior debt to EBITDA ratio |
|
|
|
Basis points per
annum increase |
Less than or equal to 3:1 |
|
|
|
|
50 |
Greater than 3:1 and less than or equal to
4:1 |
|
|
|
|
100 |
Greater than 4:1 and less than or equal to
4.5:1 |
|
|
|
|
150 |
Greater than 4.5:1 |
|
|
|
|
200 |
See "Liquidity and Capital Resources -
Liquidity" for further details on the amendments.
The interest rates on any non-hedged portion of
the Company's syndicated bank facility are subject to fluctuations
in short-term money market rates as advances on the syndicated bank
facility are generally made under short-term instruments. As at
September 30, 2015, 23 percent
(December 31, 2014 - none) of Penn
West's long-term debt instruments were exposed to changes in
short-term interest rates.
Share-Based Compensation
Share-based compensation expense relates to the
Company's Stock Option Plan (the "Option Plan"), Long-Term
Retention and Incentive Plan ("LTRIP"), Deferred Share Unit Plan
("DSU") and Performance Share Unit Plan ("PSU").
Share-based compensation consisted of the
following:
|
|
|
Three months ended
September 30 |
Nine months ended
September 30 |
(millions) |
|
|
2015 |
|
|
|
2014 |
|
|
%
change |
|
|
|
2015 |
|
|
|
2014 |
|
|
%
change |
Options |
|
$ |
1 |
|
|
$ |
2 |
|
|
(50) |
|
|
$ |
3 |
|
|
$ |
7 |
|
|
(57) |
LTRIP |
|
|
(4) |
|
|
|
- |
|
|
(100) |
|
|
|
- |
|
|
|
9 |
|
|
(100) |
PSU |
|
|
(1) |
|
|
|
(1) |
|
|
- |
|
|
|
- |
|
|
|
2 |
|
|
(100) |
Share-based compensation |
|
$ |
(4) |
|
|
$ |
1 |
|
|
(100) |
|
|
$ |
3 |
|
|
$ |
18 |
|
|
(83) |
The share price used in the fair value
calculation of the LTRIP, PSU and DSU obligations at September 30, 2015 was $0.60 (2014 - $7.59). Share-based compensation related to the
DSU was insignificant in both periods.
General and Administrative Expenses ("G&A")
|
|
Three months ended
September 30 |
Nine months ended
September 30 |
(millions, except per boe
amounts) |
|
|
2015 |
|
|
|
2014 |
%
change |
|
|
|
2015 |
|
|
|
2014 |
|
|
%
change |
Gross |
|
$ |
36 |
|
|
$ |
45 |
(20) |
|
|
$ |
113 |
|
|
$ |
135 |
|
|
(16) |
Per boe |
|
|
4.74 |
|
|
|
4.82 |
(2) |
|
|
|
4.61 |
|
|
|
4.65 |
|
|
(1) |
Net |
|
|
23 |
|
|
|
34 |
(33) |
|
|
|
68 |
|
|
|
104 |
|
|
(35) |
Per boe |
|
$ |
3.02 |
|
|
$ |
3.69 |
(18) |
|
|
$ |
2.79 |
|
|
$ |
3.58 |
|
|
(22) |
G&A decreased from the comparable periods as
a result of significant reductions in the Company's cost structure
and staffing levels.
On September 1,
2015, the Company announced a further 35 percent reduction
in staff, with most of the reductions occurring immediately. As a
result, net G&A per boe is expected to be between $2.80 per boe - $3.05 per boe for 2015.
Restructuring Expense
|
Three months ended
September 30 |
Nine months ended
September 30 |
(millions, except per
boe amounts) |
2015 |
2014 |
%
Change |
2015 |
2014 |
%
change |
Restructuring |
$ |
22 |
$ |
1 |
>100 |
$ |
27 |
$ |
12 |
>100 |
Per boe |
|
$ |
2.90 |
$ |
0.10 |
>100 |
$ |
1.12 |
$ |
0.43 |
>100 |
On September 1,
2015, the Company announced a significant reduction to its
headcount as it implemented strategies to reduce its cost
structure. As a result, restructuring charges increased during the
third quarter due to the recording of employee severances.
Depletion, Depreciation, Impairment and
Accretion
|
|
Three months ended
September 30 |
Nine months ended
September 30 |
(millions, except per boe
amounts) |
|
|
2015 |
|
|
|
2014 |
|
|
%
change |
|
|
|
2015 |
|
|
|
2014 |
|
|
%
change |
Depletion and depreciation
("D&D") |
|
$ |
155 |
|
|
$ |
181 |
|
|
(14) |
|
|
$ |
510 |
|
|
$ |
555 |
|
|
(8) |
D&D expense per boe |
|
|
20.38 |
|
|
|
19.61 |
|
|
4 |
|
|
|
20.88 |
|
|
|
19.15 |
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment |
|
|
834 |
|
|
|
- |
|
|
100 |
|
|
|
834 |
|
|
|
- |
|
|
100 |
Impairment per boe |
|
|
110.29 |
|
|
|
- |
|
|
100 |
|
|
|
34.18 |
|
|
|
- |
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accretion of decommissioning
liability |
|
|
9 |
|
|
|
9 |
|
|
- |
|
|
|
28 |
|
|
|
27 |
|
|
4 |
Accretion expense per boe |
|
$ |
1.23 |
|
|
$ |
0.98 |
|
|
26 |
|
|
$ |
1.15 |
|
|
$ |
0.93 |
|
|
24 |
The D&D expense decreased from the
comparative periods mainly due to asset dispositions in 2014 and
2015 which resulted in lower production volumes. On a per boe
basis, D&D increased from 2014 largely due to increases in
future development costs which were partially offset by the effect
of asset dispositions and impairment charges recorded in 2014.
In the third quarter of 2015, Penn West recorded
an impairment charge of $435 million
primarily related to certain non-core properties in the
Fort St. John area of northeastern
British Columbia and in the
Swan Hills and Wainwright areas of Alberta. This was mainly due to a decline in
forecasted commodity prices compared to December 31, 2014 for these non-core areas.
Additionally, during the third quarter of 2015,
Penn West announced it had entered into two definitive sale
agreements to sell certain non-core assets located in the Mitsue
area of Central Alberta and in the
Weyburn area of Southeast Saskatchewan. As the closings of
these transactions are planned for the fourth quarter of 2015, at
September 30, 2015, both asset
packages were classified as assets held for sale thus requiring an
impairment test. As a result of completing the impairment tests,
Penn West recorded an impairment charge of $399 million on these two transactions as the
book value of these assets exceeded the fair value received. The
Company remains committed to pursuing additional non-core asset
sales as it continues to focus on debt reduction and strengthening
its balance sheet. Subsequent to quarter-end, on October 30, 2015, the Mitsue disposition closed.
Penn West expects the Weyburn
transaction to close in November
2015.
Taxes
|
Three months ended
September 30 |
Nine months ended
September 30 |
(millions) |
|
|
|
2015 |
|
|
|
2014 |
|
|
% change |
|
|
|
2015 |
|
|
|
2014 |
|
|
% change |
Deferred tax expense (recovery) |
|
|
$ |
(258) |
|
|
$ |
22 |
|
|
>(100) |
|
|
$ |
(252) |
|
|
$ |
74 |
|
|
>(100) |
The deferred income tax recovery recorded during
the third quarter of 2015 was primarily due to PP&E impairment
charges recorded during the period.
For the first nine months of 2015, the deferred
income tax recovery described above was partially offset by the
proposed corporate tax rate increase in Alberta from 10 percent to 12 percent which
was substantively enacted in the second quarter of 2015 and
resulted in a $60 million charge.
Foreign Exchange
Penn West records unrealized foreign exchange
gains or losses to translate the U.S., UK and Euro denominated
senior notes and the related accrued interest to Canadian dollars
using the exchange rates in effect on the balance sheet date.
Realized foreign exchange gains or losses are recorded upon
repayment of the senior notes.
The split between realized and unrealized foreign exchange
losses is as follows:
|
|
Three months ended
September 30 |
Nine months ended
September 30 |
(millions) |
|
|
2015 |
|
|
|
2014 |
|
|
% change |
|
|
|
2015 |
|
|
|
2014 |
|
|
% change |
Realized foreign exchange loss on maturities |
|
$ |
- |
|
|
$ |
- |
|
|
- |
|
|
$ |
(36) |
|
|
$ |
(3) |
|
|
>100 |
Realized foreign exchange loss on
pre-payments |
|
|
(15) |
|
|
|
- |
|
|
(100) |
|
|
|
(59) |
|
|
|
- |
|
|
(100) |
Unrealized foreign exchange loss |
|
|
(89) |
|
|
|
(83) |
|
|
7 |
|
|
|
(162) |
|
|
|
(89) |
|
|
82 |
Foreign exchange loss |
|
$ |
(104) |
|
|
$ |
(83) |
|
|
25 |
|
|
$ |
(257) |
|
|
$ |
(92) |
|
|
>100 |
During the third quarter of 2015, Penn West
repaid US$56 million, $6 million, £2
million and €1 million as a result of the offer of
disposition proceeds to its noteholders. For the first nine months
of 2015, Penn West repaid senior notes in an aggregate amount of
US$193 million and $50 million as part of normal maturities and
additional amounts of US$258 million,
$24 million, £10 million and €2 million of senior notes were
prepaid as a result of the offers made at par to its noteholders
using asset disposition proceeds. As the Canadian dollar has
weakened relative to the US dollar from the issue date of the
senior notes to the settlement date, a realized foreign exchange
loss was recorded. For the remainder of 2015, the Company has
$7 million of normal course
maturities in December and will offer the $398 million of disposition proceeds, subject to
closing adjustments, as pre-payments to its noteholders and bank
syndicate.
The unrealized loss during both periods in 2015
is primarily due to the weakening of the Canadian dollar relative
to the US dollar. This was partially offset by repayments of its
senior notes as cumulative amounts previously recorded as
unrealized foreign exchange losses on the specific debt
maturities/pre-payments settled in the period are offset into
realized foreign exchange losses.
Net Income (Loss)
|
Three months ended
September 30 |
Nine months ended
September 30 |
(millions, except per share amounts) |
|
|
2015 |
|
|
|
2014 |
|
|
%
change |
|
|
|
2015 |
|
|
|
2014 |
|
|
%
change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
(millions) |
|
$ |
(764) |
|
|
$ |
(15) |
|
|
>100 |
|
|
$ |
(1,040) |
|
|
$ |
39 |
|
|
>(100) |
|
Basic per share |
|
|
(1.52) |
|
|
|
(0.03) |
|
|
>100 |
|
|
|
(2.07) |
|
|
|
0.08 |
|
|
>(100) |
|
Diluted per share |
|
$ |
(1.52) |
|
|
$ |
(0.03) |
|
|
>100 |
|
|
$ |
(2.07) |
|
|
$ |
0.08 |
|
|
>(100) |
The net loss in 2015 is primarily due to
non-cash PP&E impairments of $435
million in non-core properties recorded in the third quarter
of 2015 as a result of the decline in forecasted commodity prices
from December 31, 2014. Additionally,
as a result of entering into definitive sales agreements during the
third quarter of 2015 related to the Mitsue and Weyburn transactions, Penn West recorded
non-cash impairment charges of $399
million on these two transactions as the book value of these
assets exceeded the fair value received.
Capital Expenditures
|
Three months ended
September 30 |
Nine months ended
September 30 |
(millions) |
|
|
2015 |
|
|
|
2014 |
|
|
%
change |
|
|
|
2015 |
|
|
|
2014 |
|
|
%
change |
Land acquisition and
retention |
|
$ |
- |
|
|
$ |
1 |
|
|
(100) |
|
|
$ |
1 |
|
|
$ |
2 |
|
|
(50) |
Drilling and completions |
|
|
93 |
|
|
|
172 |
|
|
(46) |
|
|
|
256 |
|
|
|
345 |
|
|
(26) |
Facilities and well equipping |
|
|
31 |
|
|
|
52 |
|
|
(41) |
|
|
|
122 |
|
|
|
135 |
|
|
(10) |
Geological and geophysical |
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
2 |
|
|
|
7 |
|
|
(71) |
Corporate |
|
|
1 |
|
|
|
7 |
|
|
(86) |
|
|
|
5 |
|
|
|
10 |
|
|
(50) |
Capital carried by partners |
|
|
(9) |
|
|
|
(7) |
|
|
29 |
|
|
|
(15) |
|
|
|
(14) |
|
|
7 |
Capital expenditures
(1) |
|
|
116 |
|
|
|
225 |
|
|
(48) |
|
|
|
371 |
|
|
|
485 |
|
|
(24) |
Property dispositions, net |
|
|
1 |
|
|
|
(3) |
|
|
>(100) |
|
|
|
(411) |
|
|
|
(215) |
|
|
91 |
Total capital expenditures |
|
$ |
117 |
|
|
$ |
222 |
|
|
(47) |
|
|
$ |
(40) |
|
|
$ |
270 |
|
|
>(100) |
(1) |
Capital expenditures include costs related to Property, Plant
and Equipment and Exploration and Evaluation activities. |
In 2015, the Company has focused on development
activities within its core, light-oil areas of the Viking and
Cardium due to their positive economics under the current weak
commodity price environment. For the first nine months of 2015,
Penn West has drilled a total of 138 net operated wells
predominately in these two areas. Consistent with its updated
guidance, the Company decreased its capital spending during the
third quarter of 2015 in light of current commodity prices.
The Company continued to progress on its asset
disposition program during the third quarter and entered into
transactions to sell non-core assets located in the Mitsue area of
Alberta and its 9.5 percent
working interest in the Weyburn
unit in Saskatchewan for total
proceeds of $398 million. Subsequent
to the quarter, the Mitsue transaction closed on October 30, 2015 and the Company anticipates the
Weyburn transaction to close in
November 2015. The proceeds from the
transactions will be offered to the Company's noteholders and bank
syndicate with debt prepayments expected in December 2015.
Exploration and evaluation ("E&E")
capital expenditures
|
Three months ended
September 30 |
Nine months ended
September 30 |
(millions) |
|
|
2015 |
|
|
|
2014 |
|
|
%
change |
|
|
|
2015 |
|
|
|
2014 |
|
|
%
change |
E&E capital expenditures |
|
$ |
3 |
|
|
$ |
22 |
|
|
(86) |
|
|
$ |
10 |
|
|
$ |
53 |
|
|
(81) |
During 2015, E&E capital expenditures were
minimal as the Company focused on its core light-oil plays with the
Cardium and Viking.
Loss (gain) on asset dispositions
|
Three months ended
September 30 |
Nine months ended
September 30 |
(millions) |
|
|
2015 |
|
|
|
2014 |
|
|
%
change |
|
|
|
2015 |
|
|
|
2014 |
|
|
%
change |
Loss (gain) on asset
dispositions |
|
$ |
1 |
|
|
$ |
- |
|
|
100 |
|
|
$ |
(94) |
|
|
$ |
48 |
|
|
>(100) |
In 2015, Penn West has completed a number of
non-core asset dispositions as it continues to reduce outstanding
debt and focus its asset portfolio. Also, for the first nine months
of 2015, $3 million of transaction
costs were recorded during the disposition processes.
Goodwill
(millions) |
|
|
|
September 30,
2015 |
|
|
|
December 31,
2014 |
Balance, end of period |
|
|
|
$ |
684 |
|
|
|
$ |
734 |
Penn West recorded goodwill on its acquisitions
of Petrofund Energy Trust, Canetic Resources Trust and Vault Energy
Trust in prior years. During the third quarter of 2015, Penn West
reduced goodwill by $22 million as a
result of goodwill impairment due to two dispositions that are
classified as held for sale at September 30,
2015. In 2015, Penn West reduced goodwill by $28 million as a result of a portion of goodwill
being allocated to non-core property dispositions.
Environmental and Climate Change
The oil and gas industry has a number of
environmental risks and hazards and is subject to regulation by all
levels of government. Environmental legislation includes, but is
not limited to, operational controls, site restoration requirements
and restrictions on emissions of various substances produced in
association with oil and natural gas operations. Compliance with
such legislation could require additional expenditures and a
failure to comply may result in fines and penalties which could, in
the aggregate and under certain assumptions, become material.
Penn West is dedicated to reducing the
environmental impact from its operations through its environmental
programs which include resource conservation, water management and
site abandonment/reclamation/remediation. Operations are
continuously monitored to minimize environmental impact and
allocate sufficient capital to reclamation and other activities to
mitigate the impact on the areas in which the Company operates.
Liquidity and Capital Resources
Capitalization
|
September 30, 2015 |
December 31, 2014 |
(millions) |
|
|
|
|
|
% |
|
|
|
|
|
|
% |
Common shares issued, at market
(1) |
|
$ |
301 |
|
|
11 |
|
|
$ |
1,208 |
|
|
33 |
Bank loans and long-term notes |
|
|
2,249 |
|
|
83 |
|
|
|
2,149 |
|
|
59 |
Working capital deficiency (surplus)
(2)(3) |
|
|
165 |
|
|
6 |
|
|
|
304 |
|
|
8 |
Total enterprise value |
|
$ |
2,715 |
|
|
100 |
|
|
$ |
3,661 |
|
|
100 |
(1) |
The share price at September 30, 2015 was $0.60 (December 31,
2014 - $2.43 per share). |
(2) |
Excludes the current portion of deferred funding asset, risk
management, long-term debt and decommissioning liability. |
(3) |
Includes $6 million working capital deficiency related to
assets classified as held for sale. |
Dividends
|
Three months ended
September 30 |
Nine months ended
September 30 |
(millions, except per share
amounts) |
|
|
2015 |
|
|
|
2014 |
|
|
%
change |
|
|
|
2015 |
|
|
|
2014 |
|
|
%
change |
Dividends declared |
|
$ |
5 |
|
|
$ |
69 |
|
|
(93) |
|
|
$ |
15 |
|
|
$ |
207 |
|
|
(93) |
Per share |
|
|
0.01 |
|
|
|
0.14 |
|
|
(93) |
|
|
|
0.03 |
|
|
|
0.42 |
|
|
(93) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends paid (1) |
|
$ |
5 |
|
|
$ |
69 |
|
|
(93) |
|
|
$ |
80 |
|
|
$ |
206 |
|
|
(61) |
(1) |
Includes amounts funded by the dividend reinvestment plan. |
On July 29, 2015,
the Company declared its third quarter dividend of $0.01 per share which was paid on October 15, 2015 to shareholders of record on
September 30, 2015.
On September 1,
2015, Penn West announced that its Board of Directors
approved the suspension of the dividend until further notice,
following the October 15, 2015
payment.
Liquidity
The Company has 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). For
further details on the Company's debt instruments, please refer to
the "Financing" section of this MD&A.
The Company actively manages its debt portfolio
and considers opportunities to reduce or diversify its debt capital
structure. Management contemplates both operating and financial
risks and takes action as appropriate to limit the Company's
exposure to certain risks. Management maintains close relationships
with the Company's lenders and agents to monitor credit market
developments. These actions and plans aim to increase the
likelihood of maintaining the Company's financial flexibility and
capital program, supporting the Company's ability to capture
opportunities in the market and execute longer-term business
strategies.
The Company has a number of covenants related to
its syndicated bank facility and senior notes. On September 30, 2015, the Company was in compliance
with all of these financial covenants which consisted of the
following:
|
|
|
Limit |
|
|
September 30, 2015 |
Senior debt to EBITDA (1) |
|
|
Less than 5:1 |
|
|
4.3 |
Total debt to EBITDA (1) |
|
|
Less than 5:1 |
|
|
4.3 |
Senior debt to capitalization |
|
|
Less than 50% |
|
|
33% |
Total debt to capitalization |
|
|
Less than 55% |
|
|
33% |
(1) |
EBITDA is calculated in accordance with Penn West's lending
agreements wherein unrealized risk management gains and losses and
impairment provisions are excluded. |
The table below outlines the Company's senior
debt to EBITDA calculation as at September
30, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
Trailing
12
months |
|
|
|
Sept. 30 |
|
|
|
June 30 |
|
|
|
Mar. 31 |
|
|
|
Dec 31. |
|
|
|
Sept.
30 |
(millions, except ratios) |
|
|
2015 |
|
|
|
2015 |
|
|
|
2015 |
|
|
|
2014 |
|
|
|
2015 |
Funds Flow |
|
$ |
14 |
|
|
$ |
47 |
|
|
$ |
112 |
|
|
$ |
137 |
|
|
$ |
310 |
Financing |
|
|
40 |
|
|
|
43 |
|
|
|
37 |
|
|
|
40 |
|
|
|
160 |
Realized gain on foreign exchange
hedges on prepayments |
|
|
(6) |
|
|
|
(3) |
|
|
|
- |
|
|
|
- |
|
|
|
(9) |
Realized foreign exchange loss - debt
prepayments |
|
|
15 |
|
|
|
44 |
|
|
|
- |
|
|
|
- |
|
|
|
59 |
Restructuring expenses |
|
|
22 |
|
|
|
3 |
|
|
|
2 |
|
|
|
5 |
|
|
|
32 |
EBITDA |
|
$ |
85 |
|
|
$ |
134 |
|
|
$ |
151 |
|
|
$ |
182 |
|
|
$ |
552 |
EBITDA contribution from assets sold
(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32) |
EBITDA as defined by debt agreements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,249 |
Letters of credit - financial (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14 |
Total senior debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,263 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior debt to EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.3 |
(1) |
Consists of EBITDA contributions from assets that have been
disposed in the prior 12 months. |
(2) |
Letters of credit that are classified as financial are included
in the Senior debt calculation per the debt agreements. |
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 or less 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.
The Company intends to continue to actively
identify and evaluate hedging opportunities in order to reduce its
exposure to fluctuations in commodity prices and protect its future
cash flows and capital programs.
Financial Instruments
The Company had the following financial
instruments outstanding as at September 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 its
syndicated bank facility or 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 |
Oct/15 - Dec/15 |
|
|
$2.86/mcf |
$ |
- |
|
AECO Swaps |
19,000 mcf/d |
Jan/16 - Dec/16 |
|
|
$3.08/mcf |
|
1 |
|
|
|
|
|
|
|
|
Crude Oil |
|
|
|
|
|
|
|
|
WTI Swaps |
12,500 bbl/d |
Oct/15 - Dec/15 |
|
|
$72.57/bbl |
|
13 |
|
WTI Swaps |
4,500 bbl/d |
Jan/16 - Mar/16 |
|
|
$73.67/bbl |
|
4 |
|
WTI Swaps |
1,000 bbl/d |
Apr/16 - Jun/16 |
|
|
$71.50/bbl |
|
1 |
|
WTI Swaps |
5,000 bbl/d |
Jan/16 - Dec/16 |
|
|
$72.08/bbl |
|
10 |
|
|
|
|
|
|
|
|
|
Electricity swaps |
|
|
|
|
|
|
|
|
Alberta Power Pool |
10 MW |
Oct/15 -
Dec/15 |
|
|
$58.50/MWh |
|
(1) |
|
Alberta Power Pool |
70 MW |
Oct/15 - Dec/15 |
|
|
$55.17/MWh |
|
(3) |
|
Alberta Power Pool |
25 MW |
Jan/16 - Dec/16 |
|
|
$49.90/MWh |
|
(2) |
|
|
|
|
|
|
|
|
Crude oil assignment |
|
|
|
|
|
|
|
|
18 - month term |
10,000 boe/d |
Oct/15 - May/16 |
|
|
Differential WCS (Edm)
vs. WCS (USGC) |
|
8 |
|
|
|
|
|
|
|
|
|
Foreign exchange forwards on senior
notes |
|
|
|
|
|
|
3 to 15-year initial term |
US$229 |
2015 - 2022 |
|
|
1.000 CAD/USD |
|
75 |
|
|
|
|
|
|
|
|
|
Cross currency swaps |
|
|
|
|
|
|
|
10-year initial term |
£57 |
2018 |
|
|
2.0075 CAD/GBP, 6.95% |
|
3 |
|
10-year initial term |
£20 |
2019 |
|
|
1.8051 CAD/GBP, 9.15% |
|
6 |
|
10-year initial term |
€10 |
2019 |
|
|
1.5870 CAD/EUR, 9.22% |
|
- |
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
115 |
The components of risk management gain (loss) were as
follows:
|
Three months ended
September 30 |
Nine months ended
September 30 |
|
2015 |
2014 |
2015 |
2014 |
Realized |
|
|
|
|
|
Settlement of commodity contracts/assignment |
$ |
22 |
$ |
(6) |
$ |
29 |
$ |
(55) |
|
Monetization of commodity contracts |
- |
- |
18 |
- |
|
Settlement of foreign exchange contracts |
6 |
- |
31 |
2 |
|
Monetization of foreign exchange contracts |
- |
- |
63 |
- |
Total realized risk management gain
(loss) |
28 |
(6) |
141 |
(53) |
|
|
|
|
|
Unrealized |
|
|
|
|
|
Commodity contracts |
48 |
12 |
6 |
13 |
|
Electricity swaps |
(3) |
- |
4 |
4 |
|
Interest rate swaps |
- |
- |
- |
1 |
|
Crude oil assignment |
4 |
12 |
(3) |
12 |
|
Foreign exchange contracts |
20 |
27 |
(23) |
24 |
|
Cross-currency swaps |
7 |
- |
17 |
3 |
Total unrealized risk management
gain |
76 |
51 |
1 |
57 |
Risk management gain |
$ |
104 |
$ |
45 |
$ |
142 |
$ |
4 |
In 2015, the Company monetized a total of
US$315 million of foreign exchange
forward contracts on senior notes and settled US$147 million of foreign exchange forward
contracts as part of normal course maturities. Additionally, during
the first quarter of 2015, Penn West monetized its natural gas
hedges, and subsequently entered into new natural gas hedging
contracts.
Outlook
The Company has refined its annual production
guidance range to 85,000 - 87,000 boe per day from 84,000 - 88,000
boe per day as it nears the end of 2015. There have been no changes
to the Company's guidance for its 2015 capital budget of
$500 million and its annual average
operating costs per boe of $19.25 -
$19.75 and G&A per boe of $2.80 -
$3.05 as disclosed in its September
1, 2015 press release.
This outlook section is included to provide
shareholders with information about Penn West's expectations as at
November 4, 2015 for production,
capital expenditures, operating costs per boe and G&A per boe
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.
All press releases are available on Penn West's
website at www.pennwest.com, on SEDAR at www.sedar.com, and on
EDGAR at www.sec.gov.
Sensitivity Analysis
Estimated sensitivities to selected key
assumptions on funds flow for the 12 months subsequent to the date
of this MD&A, including risk management contracts entered to
date, are based on forecasted results as discussed in the Outlook
above.
|
Impact on funds
flow |
Change of: |
|
|
Change |
|
|
$ millions |
|
|
$/share |
Price per barrel of liquids |
|
|
$1.00 |
|
|
16 |
|
|
0.03 |
Liquids production |
|
|
1,000 bbls/day |
|
|
12 |
|
|
0.02 |
Price per mcf of natural gas |
|
|
$0.10 |
|
|
4 |
|
|
0.01 |
Natural gas production |
|
|
10 mmcf/day |
|
|
2 |
|
|
- |
Effective interest rate |
|
|
1% |
|
|
8 |
|
|
0.02 |
Exchange rate ($US per $CAD) |
|
|
$0.01 |
|
|
5 |
|
|
0.01 |
Contractual Obligations and
Commitments
We are committed to certain payments over the
next five calendar years and thereafter as follows:
|
|
2015 |
|
|
2016 |
|
|
2017 |
|
|
2018 |
|
|
|
2019 |
|
|
Thereafter |
Long-term debt |
|
$ |
376 |
|
|
$ |
249 |
|
|
$ |
227 |
|
|
$ |
371 |
|
|
$ |
619 |
|
|
$ |
407 |
Transportation |
|
|
5 |
|
|
|
29 |
|
|
|
55 |
|
|
|
59 |
|
|
|
60 |
|
|
|
284 |
Power infrastructure |
|
|
21 |
|
|
|
10 |
|
|
|
10 |
|
|
|
10 |
|
|
|
10 |
|
|
|
8 |
Drilling rigs |
|
|
4 |
|
|
|
11 |
|
|
|
7 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
Purchase obligations (1) |
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
1 |
|
|
|
- |
|
|
|
- |
Interest obligations |
|
|
35 |
|
|
|
129 |
|
|
|
100 |
|
|
|
80 |
|
|
|
40 |
|
|
|
45 |
Office lease (2) |
|
|
15 |
|
|
|
58 |
|
|
|
55 |
|
|
|
55 |
|
|
|
56 |
|
|
|
314 |
Decommissioning liability (3) |
|
$ |
15 |
|
|
$ |
22 |
|
|
$ |
77 |
|
|
$ |
76 |
|
|
$ |
72 |
|
|
$ |
306 |
(1) |
These amounts represent estimated commitments of $1
million for CO2 purchases and $3 million for processing
fees related to Penn West's interests in the Weyburn Unit. |
(2) |
The future office lease commitments above are to be reduced by
contracted sublease recoveries totalling $292 million. |
(3) |
These amounts represent the inflated, discounted future
reclamation and abandonment costs that are expected to be incurred
over the life of the Company's properties. |
The Company's syndicated bank facility is due
for renewal on May 6, 2019. In
addition, the Company has an aggregate of $1.7 billion in senior notes maturing between
2015 and 2025. If the Company is unsuccessful in renewing or
replacing the syndicated bank facility or obtaining alternate
funding for some or all of the maturing amounts of the senior
notes, it is possible that it could be required to obtain other
facilities, including term bank loans. The Company continuously
monitors its credit metrics and maintains positive working
relationships with its lenders, investors and agents.
The Company is involved in various litigation
and claims in the normal course of business and records provisions
for claims as required. In 2014, the Company 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 the Company's historical financial statements and
related MD&A. In 2014, the Company 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, is premature and cannot be
meaningfully determined. The Company intends to vigorously
defend against such actions.
Equity Instruments
|
|
|
|
|
|
Common shares issued: |
|
|
|
|
|
As at September 30, 2015 and November 4, 2015 |
|
|
|
502,163,163 |
|
|
|
|
|
Options outstanding: |
|
|
|
|
|
As at September 30, 2015 |
|
|
|
16,092,478 |
|
Granted |
|
|
|
61,100 |
|
Forfeited |
|
|
|
(2,970,735) |
|
As at November 4, 2015 |
|
|
|
13,182,843 |
Changes in Internal Control Over Financial
Reporting ("ICFR")
Penn West's senior management has evaluated
whether there were any changes in the Company's ICFR that occurred
during the period beginning on July 1,
2015 and ending on September 30,
2015 that have materially affected, or are reasonably likely
to materially affect, the Company's ICFR. No changes to Penn West's
ICFR were made during the quarter.
Penn West utilizes the original Internal Control
- Integrated Framework (1992) issued by the Committee of the
Sponsoring Organizations of the Treadway Commission (COSO) to
design and evaluate its internal control over financial reporting.
In May 2013, COSO updated the
Internal Control - Integrated Framework which superseded the 1992
Framework on December 15, 2014.
Currently, the Company is transitioning to the 2013 COSO Framework
as it relates to its ICFR.
Future Accounting Pronouncements
The IASB issued IFRS 15 "Revenue from Contracts
with Customers" which replaces IAS 18 "Revenue". IFRS 15 specifies
revenue recognition criteria and expanded disclosures for revenue.
The new standard is effective for annual periods beginning on or
after January 1, 2018 and early
adoption is permitted. Penn West is currently assessing the impact
of the standard.
The IASB completed the final sections of IFRS 9
"Financial Instruments" which replaces IAS 39 "Financial Statement:
Recognition and Measurement". IFRS 9 provides guidance on the
recognition and measurement, impairment and derecognition on
financial instruments. The new standard is effective for annual
periods beginning on or after January 1,
2018 and early adoption is permitted. Penn West is currently
assessing the impact of the standard.
Off-Balance-Sheet Financing
The Company has off-balance-sheet financing
arrangements consisting of operating leases. The operating lease
payments are summarized in the Contractual Obligations and
Commitments section.
Non-GAAP Measures
Certain financial measures 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 included in this MD&A do not have a standardized
meaning prescribed by IFRS and therefore are considered non-GAAP
measures; accordingly, they may not be comparable to similar
measures provided by other issuers. Funds flow is cash flow from
operating activities before changes in non-cash working capital and
decommissioning expenditures. 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. Funds flow
and Funds flow from operations are used to assess the Company's
ability to fund dividend and planned capital programs. See
"Calculation of Funds Flow/ Funds flow from Operations" above 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. See "Results of
Operations - Netbacks" above for a calculation of the Company's
netbacks. EBITDA is Funds Flow excluding the impact of financing
expenses, realized gains and losses on foreign exchange hedges on
prepayments, realized foreign exchange gains and losses on debt
prepayments and restructuring expenses. EBITDA as defined by Penn
West's debt agreements excludes the EBITDA contribution from assets
sold in the prior 12 months and is used within Penn West's covenant
calculations related to its syndicated bank facility and senior
notes. 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.
Oil and Gas Information
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
harbor" provisions of applicable securities legislation. In
particular, this document contains forward-looking statements
pertaining to, without limitation, the following: under "Business
Strategy", the plan to limit development capital expenditures to
remain within funds flow from operations by year-end, continuing to
build on efficiencies gained in the past and looking for further
opportunities to reduce the overall cost structure, pursuing
additional non-core asset disposition initiatives as a means to
strengthen the balance sheet and further focus our asset portfolio;
under "Crude Oil", challenges oil price will encounter due to
uncertainties regarding demand growth and the potential for
incremental supply; under "Natural Gas", the downward pressure on
AECO prices in the Fall season if the restrictions on the TCPL
system are lifted; under "General and Administrative Expenses",
anticipated net G&A per boe for 2015; under "Depletion,
Depreciation, Impairment and Accretion", remaining committed to
pursuing additional non-core asset sales and to continue to focus
on debt reduction and strengthening of the balance sheet, and the
expectation of the Weyburn
transaction closing in November 2015;
under "Foreign Exchange", the normal course maturities to be paid
by year-end and the offering of disposition proceeds as
pre-payments to noteholders and bank syndicate; under "Capital
Expenditures" the anticipated closing date for the Weyburn transaction and the offering of
disposition proceeds as pre-payments to noteholders and bank
syndicate, under "Environmental and Climate Change", our belief
that compliance with environmental legislation could require
additional expenditures and a failure to comply with such
legislation may result in fines and penalties which could, in the
aggregate and under certain assumptions, become material, our
intent to reduce the environmental impact from our operations
through environmental programs; under "Liquidity and Capital
Resources", considering opportunities to reduce or diversify the
debt capital structure, our belief that our actions increase the
likelihood of maintaining our financial flexibility and capital
programs, our intention to continue to actively identify and
evaluate hedging opportunities in order to reduce our exposure to
fluctuations in commodity prices and protect our future cash flows
and capital programs; under "Outlook", the updated annual
production guidance range; under "Sensitivity Analysis", the
estimated sensitivities to selected key assumptions on funds flow
for the 12 months subsequent to this MD&A; and under
"Contractual Obligations and Commitments", monitoring the credit
metrics and maintaining positive working relationship with the
lenders, investors and agents, our intent to vigorously defend
against any legal actions relating to damages alleged to have been
incurred due to a decline in our share price arising out of the
restatement of certain of our historical financial statements and
related MD&A. 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.
With respect to forward-looking statements
contained in this document, the Company has made assumptions
regarding, among other things: that the Company does not dispose of
additional material producing properties or royalties or other
interests therein; that the current commodity price and foreign
exchange environment will continue or improve; future capital
expenditure levels; future crude oil, natural gas liquids and
natural gas prices and differentials between light, medium and
heavy oil prices and Canadian, WTI and world oil and natural gas
prices; future crude oil, natural gas liquids and natural gas
production levels; future exchange rates and interest rates; future
debt levels; and the continued suspension of our dividend in
addition to our dividend reinvestment plan.
Although the Company believes that the
expectations reflected in the forward-looking statements contained
in this document, and the assumptions on which such forward-looking
statements are made, are reasonable, there can be no assurance that
such expectations will prove to be correct. Readers are cautioned
not to place undue reliance on forward-looking statements included
in this document, as there can be no assurance that the plans,
intentions or expectations upon which the forward-looking
statements are based will occur. By their nature, forward-looking
statements involve numerous assumptions, known and unknown risks
and uncertainties that contribute to the possibility that the
forward-looking statements contained herein will not be correct,
which may cause our actual performance and financial results in
future periods to differ materially from any estimates or
projections of future performance or results expressed or implied
by such forward-looking statements. These risks and uncertainties
include, among other things: the possibility that the Company will
not be able to continue to successfully execute our long-term plan
in part or in full, and the possibility that some or all of the
benefits that the Company anticipates will accrue to our Company
and our securityholders as a result of the successful execution of
such plan do not materialize; the possibility that the Company is
unable to execute some or all of our ongoing asset disposition
program on favourable terms or at all; 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; general economic and political
conditions in Canada, the U.S. and
globally, and in particular, the effect that those conditions have
on commodity prices and our access to capital; industry conditions,
including fluctuations in the price of crude oil, natural gas
liquids and natural gas, price differentials for crude oil and
natural gas produced in Canada as
compared to other markets, and transportation restrictions,
including pipeline and railway capacity constraints; fluctuations
in foreign exchange or interest rates; unanticipated operating
events or environmental events that can reduce production or cause
production to be shut-in or delayed (including extreme cold during
winter months, wild fires and flooding); and the other factors
described under "Risk Factors" in our Annual Information Form and
described in our public filings, available in Canada at www.sedar.com and in the United States at www.sec.gov. Readers are
cautioned that this list of risk factors should not be construed as
exhaustive.
The forward-looking statements contained in this
document speak only as of the date of this document. Except as
expressly required by applicable securities laws, the Company does
not undertake any obligation to publicly update any forward-looking
statements. The forward-looking statements contained in this
document are expressly qualified by this cautionary statement.
Additional Information
Additional information relating to Penn West,
including Penn West's Annual Information Form, is available on
SEDAR at www.sedar.com and on EDGAR at www.sec.gov.
Penn West Petroleum Ltd.
Consolidated Balance Sheets
|
|
|
|
|
|
|
|
|
|
(CAD millions, unaudited) |
Note |
September 30, 2015 |
|
|
December 31,
2014 |
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
Cash |
|
$ |
- |
|
|
$ |
67 |
|
Accounts receivable |
|
|
149 |
|
|
|
182 |
|
Other |
|
|
52 |
|
|
|
46 |
|
Deferred funding assets |
3 |
|
75 |
|
|
|
84 |
|
Risk management |
10 |
|
34 |
|
|
|
31 |
|
Assets held for sale |
4 |
|
453 |
|
|
|
- |
|
|
|
763 |
|
|
|
410 |
Non-current |
|
|
|
|
|
|
|
|
Deferred funding assets |
3 |
|
167 |
|
|
|
195 |
|
Exploration and evaluation assets |
5 |
|
500 |
|
|
|
505 |
|
Property, plant and equipment |
6 |
|
6,211 |
|
|
|
7,906 |
|
Goodwill |
7 |
|
684 |
|
|
|
734 |
|
Risk management |
10 |
|
87 |
|
|
|
102 |
|
|
|
7,649 |
|
|
|
9,442 |
Total assets |
|
$ |
8,412 |
|
|
$ |
9,852 |
|
|
|
|
|
|
|
|
Liabilities and Shareholders'
Equity |
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
|
$ |
355 |
|
|
$ |
529 |
|
Dividends payable |
|
|
5 |
|
|
|
70 |
|
Current portion of long-term debt |
8 |
|
599 |
|
|
|
283 |
|
Decommissioning liability |
9 |
|
30 |
|
|
|
52 |
|
Risk management |
10 |
|
5 |
|
|
|
9 |
|
Liabilities related to assets held for sale |
4 |
|
63 |
|
|
|
- |
|
|
|
1,057 |
|
|
|
943 |
Non-current |
|
|
|
|
|
|
|
|
Long-term debt |
8 |
|
1,650 |
|
|
|
1,866 |
|
Decommissioning liability |
9 |
|
500 |
|
|
|
533 |
|
Risk management |
10 |
|
1 |
|
|
|
10 |
|
Deferred tax liability |
|
|
662 |
|
|
|
914 |
|
Other non-current liabilities |
|
|
2 |
|
|
|
4 |
|
|
|
3,872 |
|
|
|
4,270 |
Shareholders' equity |
|
|
|
|
|
|
|
|
Shareholders' capital |
11 |
|
8,993 |
|
|
|
8,983 |
|
Other reserves |
|
|
92 |
|
|
|
89 |
|
Deficit |
|
|
(4,545) |
|
|
|
(3,490) |
|
|
|
4,540 |
|
|
|
5,582 |
Total liabilities and shareholders'
equity |
|
$ |
8,412 |
|
|
$ |
9,852 |
See accompanying notes to the unaudited interim consolidated
financial statements. |
Subsequent events (Note 4 and 10)
Commitments and contingencies (Note 13)
Penn West Petroleum Ltd.
Consolidated Statements of Income (Loss)
|
|
|
|
|
|
Three months ended
September 30 |
Nine months ended
September 30 |
(CAD millions, except
per share amounts, unaudited) |
Note |
2015 |
2014 |
2015 |
2014 |
|
|
|
|
|
|
|
|
|
|
|
Oil and natural gas sales and other income |
|
$ |
273 |
$ |
595 |
$ |
948 |
$ |
1,973 |
|
Royalties |
|
|
(20) |
|
(83) |
|
(96) |
|
(297) |
|
|
|
253 |
|
512 |
|
852 |
|
1,676 |
|
|
|
|
|
|
|
|
|
|
|
Risk management gain |
10 |
|
104 |
|
45 |
|
142 |
|
4 |
|
|
|
357 |
|
557 |
|
994 |
|
1,680 |
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
|
|
Operating |
|
|
159 |
|
193 |
|
474 |
|
544 |
|
Transportation |
|
|
12 |
|
11 |
|
35 |
|
34 |
|
General and administrative |
|
|
23 |
|
34 |
|
68 |
|
104 |
|
Restructuring |
|
|
22 |
|
1 |
|
27 |
|
12 |
|
Share-based compensation |
12 |
|
(4) |
|
1 |
|
3 |
|
18 |
|
Depletion, depreciation and impairment |
6 |
|
989 |
|
181 |
|
1,344 |
|
555 |
|
Impairment of goodwill |
4,7 |
|
22 |
|
- |
|
22 |
|
- |
|
Loss (gain) on dispositions |
6 |
|
1 |
|
- |
|
(94) |
|
48 |
|
Foreign exchange loss |
8 |
|
104 |
|
83 |
|
257 |
|
92 |
|
Exploration and evaluation |
5 |
|
2 |
|
- |
|
2 |
|
16 |
|
Financing |
8 |
|
40 |
|
37 |
|
120 |
|
117 |
|
Accretion |
9 |
|
9 |
|
9 |
|
28 |
|
27 |
|
|
|
1,379 |
|
550 |
|
2,286 |
|
1,567 |
Income (loss) before taxes |
|
|
(1,022) |
|
7 |
|
(1,292) |
|
113 |
|
|
|
|
|
|
|
|
|
|
|
Deferred tax expense (recovery) |
|
|
(258) |
|
22 |
|
(252) |
|
74 |
|
|
|
|
|
|
|
|
|
|
Net and comprehensive income
(loss) |
|
$ |
(764) |
$ |
(15) |
$ |
(1,040) |
$ |
39 |
|
|
|
|
|
|
|
|
|
|
Net income (loss) per
share |
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(1.52) |
$ |
(0.03) |
$ |
(2.07) |
$ |
0.08 |
|
Diluted |
|
$ |
(1.52) |
$ |
(0.03) |
$ |
(2.07) |
$ |
0.08 |
Weighted average shares outstanding
(millions) |
|
|
|
|
|
|
|
|
|
Basic |
11 |
|
502.2 |
|
494.8 |
|
501.9 |
|
492.6 |
|
Diluted |
11 |
|
502.2 |
|
494.8 |
|
501.9 |
|
492.6 |
See accompanying notes to the unaudited interim consolidated
financial statements. |
Penn West Petroleum Ltd.
Consolidated Statements of Cash Flows
|
|
|
|
|
|
Three months ended
September 30 |
Nine months ended
September 30 |
(CAD millions, unaudited) |
Note |
2015 |
2014 |
2015 |
2014 |
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(764) |
$ |
(15) |
$ |
(1,040) |
$ |
39 |
|
Depletion, depreciation and impairment |
6 |
|
989 |
|
181 |
|
1,344 |
|
555 |
|
Impairment of goodwill |
|
|
22 |
|
- |
|
22 |
|
- |
|
Loss (gain) on dispositions |
6 |
|
- |
|
- |
|
(97) |
|
48 |
|
Exploration and evaluation |
|
|
2 |
|
- |
|
2 |
|
16 |
|
Accretion |
9 |
|
9 |
|
9 |
|
28 |
|
27 |
|
Deferred tax expense (recovery) |
|
|
(258) |
|
22 |
|
(250) |
|
74 |
|
Share-based compensation |
12 |
|
1 |
|
2 |
|
3 |
|
7 |
|
Unrealized risk management gain |
10 |
|
(76) |
|
(51) |
|
(1) |
|
(57) |
|
Unrealized foreign exchange loss |
8 |
|
89 |
|
83 |
|
162 |
|
89 |
|
Decommissioning expenditures |
9 |
|
(9) |
|
(12) |
|
(25) |
|
(32) |
|
Change in non-cash working capital |
|
|
54 |
|
73 |
|
- |
|
(38) |
|
|
|
59 |
|
292 |
|
148 |
|
728 |
Investing activities |
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(116) |
|
(225) |
|
(371) |
|
(485) |
|
Property dispositions (acquisitions), net |
|
|
(1) |
|
3 |
|
411 |
|
215 |
|
Change in non-cash working capital |
|
|
20 |
|
110 |
|
(123) |
|
49 |
|
|
|
(97) |
|
(112) |
|
(83) |
|
(221) |
Financing activities |
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in long-term debt |
8 |
|
23 |
|
(125) |
|
507 |
|
(296) |
|
Repayment of senior notes |
8 |
|
(84) |
|
- |
|
(664) |
|
(62) |
|
Issue of equity |
|
|
- |
|
- |
|
- |
|
11 |
|
Realized foreign exchange loss on repayments |
8 |
|
15 |
|
- |
|
95 |
|
3 |
|
Dividends paid |
|
|
(5) |
|
(55) |
|
(70) |
|
(163) |
|
|
|
(51) |
|
(180) |
|
(132) |
|
(507) |
|
|
|
|
|
|
|
|
|
|
Change in cash |
|
|
(89) |
|
- |
|
(67) |
|
- |
Cash, beginning of period |
|
|
89 |
|
- |
|
67 |
|
- |
Cash, end of period |
|
$ |
- |
$ |
- |
$ |
- |
$ |
- |
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 |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
(1,040) |
|
|
|
(1,040) |
Share-based compensation |
|
12 |
|
|
|
- |
|
|
|
3 |
|
|
|
- |
|
|
|
3 |
Issued to dividend reinvestment
plan |
|
11 |
|
|
|
10 |
|
|
|
- |
|
|
|
- |
|
|
|
10 |
Dividends declared |
|
11 |
|
|
|
- |
|
|
|
- |
|
|
|
(15) |
|
|
|
(15) |
Balance at September 30,
2015 |
|
|
|
|
$ |
8,993 |
|
|
$ |
92 |
|
|
$ |
(4,545) |
|
|
$ |
4,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 |
|
|
|
|
|
- |
|
|
|
- |
|
|
|
39 |
|
|
|
39 |
Share-based compensation |
|
12 |
|
|
|
- |
|
|
|
7 |
|
|
|
- |
|
|
|
7 |
Issued on exercise of options |
|
11 |
|
|
|
12 |
|
|
|
(1) |
|
|
|
- |
|
|
|
11 |
Issued to dividend reinvestment
plan |
|
11 |
|
|
|
43 |
|
|
|
- |
|
|
|
- |
|
|
|
43 |
Dividends declared |
|
11 |
|
|
|
- |
|
|
|
- |
|
|
|
(207) |
|
|
|
(207) |
Balance at September 30, 2014 |
|
|
|
|
$ |
8,968 |
|
|
$ |
86 |
|
|
$ |
(1,648) |
|
|
$ |
7,406 |
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 10)
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
November 4, 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.
|
|
|
|
September 30, 2015 |
|
|
|
December 31, 2014 |
Peace River Oil Partnership |
|
|
$ |
159 |
|
|
$ |
195 |
Cordova Joint Venture |
|
|
|
83 |
|
|
|
84 |
Total |
|
|
$ |
242 |
|
|
$ |
279 |
|
|
|
|
|
|
|
|
|
Current portion |
|
|
$ |
75 |
|
|
$ |
84 |
Long-term portion |
|
|
|
167 |
|
|
|
195 |
Total |
|
|
$ |
242 |
|
|
$ |
279 |
4. Assets and liabilities held for sale
Assets and liabilities classified as held for sale consisted of
the following:
|
|
|
|
September 30, 2015 |
|
|
|
December 31, 2014 |
Assets held for sale |
|
|
|
|
|
|
|
|
Working capital |
|
|
$ |
19 |
|
|
$ |
- |
Property, plant and equipment |
|
|
|
434 |
|
|
|
- |
|
|
|
$ |
453 |
|
|
$ |
- |
Liabilities related to assets held for
sale |
|
|
|
|
|
|
|
|
Working capital |
|
|
$ |
25 |
|
|
$ |
- |
Decommissioning liability |
|
|
|
38 |
|
|
|
- |
|
|
|
$ |
63 |
|
|
$ |
- |
As a result of entering into two definitive sale
agreements during the third quarter of 2015, at September 30, 2015, the Company classified
certain non-core assets located in the Mitsue area of Central Alberta and in the Weyburn area of Southeast Saskatchewan as assets held for
sale. Subsequent to quarter-end, on October
30, 2015, the Mitsue disposition closed for total proceeds
of $193 million, subject to closing
adjustments. Penn West expects the Weyburn transaction to close in November 2015 with anticipated total proceeds of
$205 million, subject to closing
adjustments.
On September 30,
2015, these assets were recorded at the lesser of fair value
less costs to sell and their carrying amount, resulting in an
impairment loss of $421 million of
which $399 million has been recorded
as additional depletion, depreciation and impairment and
$22 million has been recorded as
impairment of goodwill on the Consolidated Statements of Income
(Loss).
5. Exploration and evaluation ("E&E")
assets
|
|
|
Nine months
ended
September 30, 2015 |
|
|
Year ended
December 31, 2014 |
Balance, beginning of period |
|
|
$ |
505 |
|
|
$ |
645 |
Capital expenditures |
|
|
|
10 |
|
|
|
92 |
Joint venture, carried capital |
|
|
|
- |
|
|
|
16 |
Expense |
|
|
|
(2) |
|
|
|
(16) |
Transfers to PP&E |
|
|
|
(13) |
|
|
|
(232) |
Balance, end of period |
|
|
$ |
500 |
|
|
$ |
505 |
6. Property, plant and equipment
Cost |
|
|
Nine months
ended
September 30, 2015 |
|
|
Year ended
December 31, 2014 |
Balance, beginning of period |
|
|
$ |
17,456 |
|
|
$ |
17,974 |
Capital expenditures |
|
|
|
361 |
|
|
|
640 |
Joint venture, carried
capital |
|
|
|
15 |
|
|
|
13 |
Acquisitions |
|
|
|
2 |
|
|
|
12 |
Dispositions |
|
|
|
(485) |
|
|
|
(1,416) |
Transfers from E&E |
|
|
|
13 |
|
|
|
232 |
Transfers to assets held for
sale |
|
|
|
(1,000) |
|
|
|
- |
Decommissioning additions
(dispositions), net |
|
|
|
(20) |
|
|
|
1 |
Balance, end of period |
|
|
$ |
16,342 |
|
|
$ |
17,456 |
|
|
|
|
|
|
|
|
|
Accumulated depletion and
depreciation |
|
|
Nine months
ended
September 30, 2015 |
|
|
Year ended
December 31, 2014 |
Balance, beginning of period |
|
|
$ |
9,550 |
|
|
$ |
8,899 |
Depletion and depreciation |
|
|
|
510 |
|
|
|
750 |
Impairments |
|
|
|
834 |
|
|
|
634 |
Transfers to assets held for
sale |
|
|
|
(566) |
|
|
|
- |
Dispositions |
|
|
|
(197) |
|
|
|
(733) |
Balance, end of period |
|
|
$ |
10,131 |
|
|
$ |
9,550 |
|
|
|
|
|
|
|
|
|
Net book value |
|
|
September 30,
2015 |
|
|
December 31,
2014 |
Total |
|
|
$ |
6,211 |
|
|
$ |
7,906 |
In 2015, Penn West recorded gains on
dispositions of $94 million (2014 -
$48 million loss), which included
$3 million expense related to
advisory fees (2014 - insignificant).
Due to decreases in commodity price forecasts
from December 31, 2014, management
determined that there were indicators of impairment at September 30, 2015 thus impairment tests were
required on all CGUs. As a result, Penn West recorded a
$435 million impairment charge
primarily related to certain properties in the Fort St. John area of northeastern
British Columbia and in the
Swan Hills and Wainwright areas of Alberta. The recoverable amounts used in the
impairment tests, based on fair value less cost to sell, related to
these CGUs were calculated using estimated proved plus probable
reserves and incremental development drilling locations at a
pre-tax discount rate of 10 percent.
The following table outlines benchmark prices
adjusted for differentials specific to the Company as at
September 30, 2015 used in the
impairment tests:
|
|
|
|
WTI
($US/ bbl) |
|
|
|
AECO
($CAD/mcf) |
|
|
Exchange rate ($US
equals $1 CAD) |
2015 |
|
|
$ |
46.00 |
|
|
$ |
2.92 |
|
|
0.76 |
2016 |
|
|
|
55.00 |
|
|
|
3.10 |
|
|
0.78 |
2017 |
|
|
|
70.00 |
|
|
|
3.32 |
|
|
0.85 |
2018 |
|
|
|
75.00 |
|
|
|
3.91 |
|
|
0.85 |
2019 |
|
|
|
80.00 |
|
|
|
4.49 |
|
|
0.85 |
2020 - 2025 |
|
|
$ |
84.30 |
|
|
$ |
5.00 |
|
|
0.85 |
Thereafter (inflation
percentage) |
|
|
|
1.5% |
|
|
|
1.5% |
|
|
- |
As outlined in Note 4, the Company recorded
$399 million of PP&E impairment
as a result of classifying certain non-core assets as assets held
for sale. These calculations were based on the proceeds from the
signed sales agreements.
Impairment losses have been included within depletion,
depreciation and impairment.
7. Goodwill
|
|
|
Nine months
ended
September 30, 2015 |
|
|
Year ended
December 31, 2014 |
Balance, beginning of period |
|
|
$ |
734 |
|
|
$ |
1,912 |
Dispositions |
|
|
|
(28) |
|
|
|
(78) |
Impairment |
|
|
|
(22) |
|
|
|
(1,100) |
Balance, end of period |
|
|
$ |
684 |
|
|
$ |
734 |
Penn West's goodwill balance is primarily
associated with a group of CGUs which represent key light-oil
properties in the Cardium, Slave Point and Viking areas.
Penn West completed a goodwill impairment test
for the balance related to the above mentioned group of CGUs at
September 30, 2015 and the
recoverable amount exceeded the carrying value, thus no impairment
was recorded. The recoverable amount was determined based on the
fair value less cost to sell method. The key assumptions used in
determining the recoverable amount include the future cash flows
using reserve, resource and internal forecasts, forecasted
commodity prices, discount rates, foreign exchange rates, inflation
rates and future development costs estimated by internal reserve
engineers and other internal estimates based on historical
experiences and trends.
The values assigned to the future cash flows,
forecasted commodity prices and future development costs were
obtained through a combination of internal estimates and
information received from its independent reserve engineers. These
values were based on future cash flows of proved plus probable
reserves discounted at a before-tax rate of 10 percent. The future
cash flows also consider, when appropriate, past capital
activities, competitor analysis, observable market conditions,
comparable transactions and future development costs.
The value of resources incremental to the
reserve report was obtained from internal analysis completed by
Penn West most notably through the review of its drilling program
results and competitor analysis and outlined in its long-term plan.
This was further supported by contingent resource studies that were
compiled by independent reserve engineers. Based on this internal
analysis, Penn West identified and risked potential drilling
locations that were not assigned any proved plus probable reserves.
The value of these additional drilling locations was included in
the recoverable amount, based on the net present value of proved
undeveloped locations within the same resource play from the
Company's internal reserve report at September 30, 2015. A before-tax discount rate of
10 percent was applied to determine an estimate of the present
value of the future cash flows.
Additionally, as outlined in Note 4, the Company
recorded $22 million of goodwill
impairment as a result of classifying certain non-core assets as
assets held for sale.
8. Long-term debt
|
|
|
Amount (millions) |
|
|
Maturity dates |
|
|
Average
interest
rate (1) |
|
|
September 30, 2015 |
|
|
December 31, 2014 |
2007 Notes |
|
|
US$243 |
|
|
2015 - 2022 |
|
|
6.86% |
|
|
$ |
324 |
|
|
$ |
550 |
2008 Notes |
|
|
US$400,
CAD$30 |
|
|
2016 - 2020 |
|
|
7.24% |
|
|
|
564 |
|
|
|
587 |
UK Notes |
|
|
£47 |
|
|
2018 |
|
|
6.95%
(2) |
|
|
|
95 |
|
|
|
103 |
2009 Notes |
|
|
US$77(3),
£19,€8 |
|
|
2015 - 2019 |
|
|
9.77%(4) |
|
|
|
154 |
|
|
|
158 |
2010 Q1 Notes |
|
|
US$178 |
|
|
2015 - 2025 |
|
|
6.69% |
|
|
|
237 |
|
|
|
341 |
2010 Q4 Notes |
|
|
US$140, CAD$45 |
|
|
2015 - 2025 |
|
|
5.95% |
|
|
|
231 |
|
|
|
258 |
2011 Notes |
|
|
US$87, CAD$22 |
|
|
2016 - 2021 |
|
|
5.49% |
|
|
|
137 |
|
|
|
152 |
Total senior unsecured notes |
|
|
1,742 |
|
|
|
2,149 |
Syndicated bank facility
advances |
|
|
507 |
|
|
|
- |
Total long-term debt |
|
$ |
2,249 |
|
|
$ |
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 8.78 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 10). |
(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, at 10.49 percent and 10.52
percent, to 9.15 percent and 9.22 percent, respectively, and to fix
the exchange rate on repayment (refer to Note 10). |
The split between current and non-current long-term debt is as
follows:
|
|
|
|
|
|
|
September 30,
2015 |
|
|
|
December 31, 2014 |
Current portion |
|
|
|
|
|
|
$ |
599 |
|
|
$ |
283 |
Long-term portion |
|
|
|
|
|
|
|
1,650 |
|
|
|
1,866 |
Total |
|
|
|
|
|
|
$ |
2,249 |
|
|
$ |
2,149 |
There were no senior notes issued in either 2015
or 2014.
Additional information on Penn West's senior
notes is as follows:
|
September 30, 2015 |
December 31, 2014 |
Weighted average remaining life (years) |
|
3.3 |
|
3.7 |
Weighted average interest rate (1) |
|
7.1% |
|
6.0% |
(1) |
Includes the effect of cross currency swaps (refer to
Note 10). |
At September 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 September 30, 2015, the
Company had $648 million 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 as short-term borrowings. At September 30, 2015, 23 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 September 30, 2015, the Company was in compliance
with all of its financial covenants under such lending
agreements.
Letters of credit totalling $45 million were outstanding on September 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 or less 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 2015, Penn West repaid senior notes in an
aggregate amount of US$193 million
and CAD$50 million as part of normal
maturities and additional amounts of US$258
million, CAD$24 million,
£10 million and €2 million of senior
notes were prepaid as a result of the offers made at par to its
noteholders using asset disposition proceeds. In 2015, Penn West
also repaid a total of $56 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
September 30 |
Nine months
ended
September 30 |
|
2015 |
2014 |
2015 |
2014 |
Realized foreign exchange loss on debt
maturities |
$ |
- |
$ |
- |
$ |
(36) |
$ |
(3) |
Realized foreign exchange loss on debt
pre-payments |
(15) |
- |
(59) |
- |
Unrealized foreign exchange loss |
(89) |
(83) |
(162) |
(89) |
Foreign exchange loss |
$ |
(104) |
$ |
(83) |
$ |
(257) |
$ |
(92) |
9. 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:
|
|
|
|
|
|
|
|
|
September 30,
2015 |
|
|
December 31,
2014 |
Current portion |
|
|
$ |
30 |
|
|
$ |
52 |
Long-term portion |
|
|
|
500 |
|
|
|
533 |
Total |
|
|
$ |
530 |
|
|
$ |
585 |
Changes to the decommissioning liability were as follows:
|
|
|
Nine months ended
September 30, 2015 |
|
|
Year ended
December 31, 2014 |
Balance, beginning of period |
|
|
$ |
585 |
|
|
$ |
603 |
Net liabilities disposed (1) |
|
|
|
(16) |
|
|
|
(75) |
Increase (decrease) in liability due to change in
estimate |
|
|
|
(4) |
|
|
|
76 |
Liabilities settled |
|
|
|
(25) |
|
|
|
(55) |
Transfers to liabilities for assets held for
sale |
|
|
|
(38) |
|
|
|
- |
Accretion charges |
|
|
|
28 |
|
|
|
36 |
Balance, end of period |
|
|
$ |
530 |
|
|
$ |
585 |
(1) |
Includes additions from drilling activity, facility capital
spending and disposals related to net property dispositions. |
10. 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 8,
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 September 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 September 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 |
|
|
Nine months
ended
September 30, 2015 |
|
|
Year ended
December 31, 2014 |
Balance, beginning of
period |
|
|
$ |
114 |
|
|
$ |
12 |
Unrealized gain (loss)
on financial instruments: |
|
|
|
|
|
|
|
|
|
Commodity collars, swaps and assignments |
|
|
|
3 |
|
|
|
51 |
|
Electricity
swaps |
|
|
|
4 |
|
|
|
(2) |
|
Interest rate swaps |
|
|
|
- |
|
|
|
1 |
|
Foreign exchange forwards |
|
|
|
(23) |
|
|
|
48 |
|
Cross currency swaps |
|
|
|
17 |
|
|
|
4 |
Total fair value, end
of period |
|
|
$ |
115 |
|
|
$ |
114 |
Penn West had the following financial
instruments outstanding as at September 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 |
Oct/15 - Dec/15 |
|
|
$2.86/mcf |
$ |
- |
|
AECO Swaps |
19,000 mcf/d |
Jan/16 - Dec/16 |
|
|
$3.08/mcf |
|
1 |
|
|
|
|
|
|
|
|
Crude Oil |
|
|
|
|
|
|
|
|
WTI Swaps |
12,500 bbl/d |
Oct/15 - Dec/15 |
|
|
$72.57/bbl |
|
13 |
|
WTI Swaps |
4,500 bbl/d |
Jan/16 - Mar/16 |
|
|
$73.67/bbl |
|
4 |
|
WTI Swaps |
1,000 bbl/d |
Apr/16 - Jun/16 |
|
|
$71.50/bbl |
|
1 |
|
WTI Swaps |
5,000 bbl/d |
Jan/16 - Dec/16 |
|
|
$72.08/bbl |
|
10 |
|
|
|
|
|
|
|
|
|
Electricity swaps |
|
|
|
|
|
|
|
|
Alberta Power Pool |
10 MW |
Oct/15 -
Dec/15
|
|
|
$58.50/MWh |
|
(1) |
|
Alberta Power Pool |
70 MW |
Oct/15 - Dec/15 |
|
|
$55.17/MWh |
|
(3) |
|
Alberta Power Pool |
25 MW |
Jan/16 - Dec/16 |
|
|
$49.90/MWh |
|
(2) |
|
|
|
|
|
|
|
|
Crude oil assignment |
|
|
|
|
|
|
|
|
18 - month term |
10,000 boe/d |
Oct/15 - May/16 |
|
|
Differential WCS (Edm)
vs. WCS (USGC) |
|
8 |
|
|
|
|
|
|
|
|
|
Foreign exchange forwards on senior
notes |
|
|
|
|
|
|
3 to 15-year initial term |
US$229 |
2015 - 2022 |
|
|
1.000 CAD/USD |
|
75 |
|
|
|
|
|
|
|
|
|
Cross currency swaps |
|
|
|
|
|
|
|
10-year initial term |
£57 |
2018 |
|
|
2.0075 CAD/GBP, 6.95% |
|
3 |
|
10-year initial term |
£20 |
2019 |
|
|
1.8051 CAD/GBP, 9.15% |
|
6 |
|
10-year initial term |
€10 |
2019 |
|
|
1.5870 CAD/EUR, 9.22% |
|
- |
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
$ |
115 |
Based on September 30,
2015 pricing, a $1.00 change
in the price per barrel of liquids would have changed pre-tax
unrealized risk management by $7
million and a $0.10 change in
the price per mcf of natural gas would change pre-tax unrealized
risk management by $1 million.
Subsequent to September
30, 2015, the Company entered into additional crude oil
swaps on 1,000 barrels per day of production in the second quarter
of 2016 at WTI CAD$65.00 per barrel,
1,000 barrels per day of production in the third of 2016 at WTI
CAD$66.05 per barrel, 1,000 barrels
per day of production in the fourth quarter of 2016 at WTI
CAD$67.05 per barrel, 1,000 barrels
per day of production in the first quarter of 2017 at WTI
CAD$68.00 per barrel, 2,000 barrels
per day of production in the first quarter of 2017 at WTI
CAD$70.05 per barrel. Additionally,
it entered into foreign exchange forward contracts on US$170 million at 1.32
CAD/USD which are set to expire in December 2015.
The components of risk management on the
Statement of Income (Loss) are as follows:
|
Three months ended
September 30 |
Nine months
ended
September 30 |
|
2015 |
2014 |
2015 |
2014 |
Realized |
|
|
|
|
|
Settlement of commodity contracts/assignment |
$ |
22 |
$ |
(6) |
$ |
29 |
$ |
(55) |
|
Monetization of commodity contracts |
- |
- |
18 |
- |
|
Settlement of foreign exchange contracts |
6 |
- |
31 |
2 |
|
Monetization of foreign exchange contracts |
- |
- |
63 |
- |
Total realized risk management gain
(loss) |
28 |
(6) |
141 |
(53) |
|
|
|
|
|
Unrealized |
|
|
|
|
|
Commodity contracts |
48 |
12 |
6 |
13 |
|
Electricity swaps |
(3) |
- |
4 |
4 |
|
Interest rate swaps |
- |
- |
- |
1 |
|
Crude oil assignment |
4 |
12 |
(3) |
12 |
|
Foreign exchange contracts |
20 |
27 |
(23) |
24 |
|
Cross-currency swaps |
7 |
- |
17 |
3 |
Total unrealized risk management
gain |
76 |
51 |
1 |
57 |
Risk management gain |
$ |
104 |
$ |
45 |
$ |
142 |
$ |
4 |
Operating costs for the nine months ended
September 30, 2015 include a realized
loss of $10 million (2014 -
$1 million loss) on electricity
contracts and for the third quarter a realized loss of $6 million (2014 - $1
million gain).
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$147 million as part of normal course
maturities. At September 30, 2015,
the following foreign currency forward contracts were
outstanding:
Nominal
Amount |
Settlement date |
Exchange
rate |
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 |
11. 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, September 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
September 30 |
|
|
Nine months ended
September 30 |
Average shares
outstanding (millions) |
|
|
2015 |
|
|
2014 |
|
|
2015 |
|
|
2014 |
Weighted average |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted |
|
|
502.2 |
|
|
494.8 |
|
|
501.9 |
|
|
492.6 |
For the third quarter and for the first nine
months of 2015, 16.1 million shares (2014 - 14.5 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.
iii) Dividends
Including amounts funded by the Dividend
Reinvestment Plan, Penn West paid dividends of $0.01 per share totalling $5 million in the third quarter of 2015 and
$80 million in the first nine months
of 2015. On October 15, 2015, Penn
West paid its third quarter dividend of $0.01 per share totalling $5 million.
12. 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.
|
Nine months ended
September 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 |
|
|
(3,429,180) |
|
|
|
12.65 |
|
|
(7,757,072) |
|
|
|
16.20 |
Outstanding, end of period |
|
|
16,092,478 |
|
|
$ |
10.39 |
|
|
14,460,158 |
|
|
$ |
13.91 |
Exercisable, end of period |
|
|
6,023,268 |
|
|
$ |
17.01 |
|
|
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) |
Nine months ended
September 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 |
(1,198,972) |
|
|
|
(1,132,029) |
Forfeited/ Expired |
(3,786,202) |
|
|
|
(1,264,704) |
Outstanding, end of period |
7,162,252 |
|
|
|
3,166,476 |
At September 30,
2015, LTRIP obligations of $2
million were classified as a current liability (December 31, 2014 - $4
million) included in accounts payable and accrued
liabilities and $1 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 September
30, 2015, 428,961 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) |
|
|
Nine months ended
September 30, 2015 |
|
|
Year ended
December 31, 2014 |
Outstanding, beginning of
period |
|
|
771,020 |
|
|
969,723 |
Granted |
|
|
1,483,000 |
|
|
620,000 |
Vested |
|
|
(294,567) |
|
|
(570,770) |
Forfeited |
|
|
(281,411) |
|
|
(247,933) |
Outstanding, end of period |
|
|
1,678,042 |
|
|
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 September 30,
2015, nil (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:
|
|
|
|
|
|
Nine months ended September 30 |
|
|
|
|
|
|
|
2015 |
|
|
|
|
|
2014 |
Options |
|
|
|
|
|
$ |
3 |
|
|
|
|
$ |
7 |
LTRIP |
|
|
|
|
|
|
- |
|
|
|
|
|
9 |
PSU |
|
|
|
|
|
|
- |
|
|
|
|
|
2 |
Share-based compensation |
|
|
|
|
|
$ |
3 |
|
|
|
|
$ |
18 |
The share price used in the fair value
calculation of the LTRIP, PSU and DSU obligations at September 30, 2015 was $0.60 (September 30,
2014 - $7.59). 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:
|
|
|
|
Nine months ended September 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.
13. 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, is premature and cannot be
meaningfully determined. The Company intends to vigorously
defend against such actions.
SOURCE Penn West