Penn West Petroleum sells oilfield stake to trim debt
The latest in a series of asset sales designed to pay down debt slices close to the productive core for Penn West Petroleum Ltd., says an analyst commenting on the $ 205- million sale of its stake in a Weyburn, Sask., enhanced oil recovery project.
On Thursday, the Calgary- based intermediate said it would sell its 9.5 per cent interest in the project operated by Cenovus Energy Inc. to an unnamed party believed to be a large U. S. pension fund.
The project uses carbon dioxide purchased from a coal gasification plant in North Dakota to enhance oil production, sequestering the greenhouse gas underground.
“This disposition further demonstrates the continued success of our non- core asset disposition program,” said chief financial officer David Dyck in a news release. “With this transaction, we have surpassed our $ 650- million noncore asset disposition target.”
He added the company will continue to pursue additional sales to reduce debt while focusing on “core operations.”
Analyst Kyle Preston, of National Bank Financial, said in a research note that Penn West is getting a “decent price” of about $ 82,000 per flowing barrel through the deal, but its impact on the estimated 2016 debt- to- cashflow ratio is minimal.
“As oil prices remain lower for longer, we are becoming increasingly concerned about PWT’s ability to manage through this downturn, especially as it is forced to sell high- quality assets like Weyburn,” he wrote, adding his 12- month target price is being cut to 50 cents per share from $ 1.
Analyst Brian Kristjansen of Dundee Capital Markets said he had been carrying a value of $ 131,500 per barrel on the Weyburn asset but raised his target price to $ 1.20 from $ 1.10.
On Thursday, Penn West shares rose as much as 13 per cent to 68 cents, up eight cents, on the Toronto Stock Exchange. They closed at 67 cents, about nine per cent of their value 12 months ago.
The price Penn West is getting is about half of the $ 400 million in cash it received in 2012 when it sold an 11.7 per cent working interest in the Weyburn project to Franco- Nevada Corp. That sale was also designed to pay down debt.
The company said its share of oil produced from the Weyburn project is currently about 2,500 barrels per day.
It added its 2015 average production is expected to fall by 2,000 bpd to between 84,000 and 88,000 bpd as a result of the Weyburn sale and its $ 192- million sale of Mitsue assets near Slave Lake in northern Alberta last month.
The company has raised $ 1.9 billion from selling assets in the past 27 months. Its debt at the end of the second quarter was $ 2.2 billion.
In early September, president and chief executive Dave Roberts announced Penn West would lay off 400 people, representing 35 per cent of its workforce, mainly from the Calgary head office. The company also warned its New York Stock Exchange listing was in danger because its average price had dropped below US$ 1 per share.
Cenovus has the largest stake in the Weyburn project at about 62 per cent. Current gross production is about 26,000 bpd.
The Ontario Teachers’ Pension Plan bought a 4.9 per cent stake in the Weyburn project from Pengrowth Energy Corp. in 2012 and added an overriding royalty there this summer as part of a deal to buy Cenovus’ royalty assets for $ 3.3 billion.