Penn West looks to turn a page
New name, same old share-price issue
CALGARY • In a bid to turn the page on its troubled past, Penn West Petroleum Ltd. is changing its name, but it may take more than a new letterhead to reverse the company’s fortunes.
Penn West officially changed its name Monday to Obsidian Energy at an investor meeting, where president and CEO David French said the new moniker “describes a new company.” ‘ Obsidian Energy’ is a naturally occurring volcanic glass with a similar sheen to crude oil and embodies strength, dependability, and longevity — characteristics that the company hopes to live up to.
While many Calgary-based oil and gas producers have been under pressure in the prolonged oil price downturn, the past few years have been especially challenging for Penn West. An accounting scandal followed by collapsing oil prices pushed Penn West to near bankruptcy and its shares to a low of 67 cents each in September 2015.
The company also in danger of being de- listed from the New York Stock Exchange.
The company began to rebound as it paid down debt thanks to a $1.1-billion asset sale last June. Its shares closed at $1.70 in Toronto on Monday, down 2.9 per cent for the day.
“It’s been a year-over-year transformation between 2013 and today,” French said, adding the transition “was not an easy path to take.”
Penn West previously operated in 30 areas, employed 2,000 people and had 15 executives. But the newlyminted Obsidian will operate in just three areas, employ 300 people and has cut its executive team to five.
“We no longer resemble the old ‘ Penn West.’ This year marks a new beginning for us, and we are excited to turn the page on a new chapter,” French said in a release in May, when the company proposed the name change.
French said the company has shrunk dramatically in recent years, but it has reduced its debt by 90 per cent, to $ 384 million in the first quarter this year from $ 1.9 billion in 2015.
Like many i nvestors, shareholder Jeffrey Gauf was displeased with how the company’s stock has from fallen $ 12 each in the past four years, and told management at the annual general meeting here he wanted to see the company sold.
“Every one of the shareholders in this company has been decimated,” Gauf said, adding the company has been the subject of a classaction lawsuit and has eliminated its dividend.
“My best guess would be you people should sell this company and we can take as much money as we can get,” he said.
French noted the past four years have been difficult for shareholders, the company’s board and management and employees.
“I think who we are as a company has changed over the last several years,” he said. “It’s challenging to carry a large dividend and significant debt levels in the face of prices that are falling.”
During a presentation to shareholders, French said while the company’s total production has contracted from 130,000 barrels per day to 35,000 bpd, its margins have improved.
Now, he said, the company can continue to earn returns as long as oil prices remain above US$ 35 per barrel and natural gas prices are above $ 1.60 per thousand cubic feet.
“If we had not done the work over the last several years over the portfolio and rationalizing who we are, I think we’d be in a position where we’d be concerned about $45 oil,” he said.
West Texas Intermediate oil prices climbed slightly Monday to US$ 43.37 per barrel.
RBC Capital Markets analyst Greg Pardy said in a research note last week that Obsidian has the flexibility to scale back its capital spending in its three operating areas in Alberta as prices change. He has a $2.50 price target on the stock.