Carler98, I certainly agree that stocks don't crash to such an extent for no reason, however what we are debating is the extent to which such a drop is warranted. When it comes to oil and gas investing, it is vital to focus on what the asset market is doing rather than what the stocks are doing, and the reason for that is simple: Oil & Gas assets are traded by industry professionals that have a good handle on the long term economic value of the assets they are buying or selling, while stocks are traded by many who don't understand the oil markets or the underlying oil assets. Penn West underlying asset value has not declined by 70% (from $8B EV to $2.5B EV) as the current valuation imply, it declined by a lot but not by as much. Here are a couple of data points issued by RBC on August 17th in regards to valuations applied in 2015 O&G assets deals:

 

 

As can be seen from the above 2015 YTD average for asset deals in the yield and growth O&G asset class (Penn West asset glass) actually averaged more than prior years (probably due to the focus on high quality assets). Meanwhile Penn West core areas assets continue to trade at top dollars:

 

 

 

Now you can argue that RBC's numbers (even though they pertain to 2015) are backward looking at thus asset sales will take place at lower prices going forward, but to what extend would they decline? 20%? 30%? 40% or 50%?. If you apply a 40% discount to the company EV last year that would give you $5.2 a share and if you apply a 50% discount that would give you $3.6 a share: Keep in mind, the oil market is not dead, this is a cyclical industry, and we are at the lower end of that cycle, by 2017 the industry will be singing a different tune. O&G assets are not acquired for their potential this quarter or next, they are valued over a multi-year/multi-year time frame.

 

Thus, I go back to my earlier point, Penn West did not decline for nothing, however the extent of the decline has gone far beyond the decline in the fundamentals and thus the stock is worth much more than 60c, but much less than where it was in 2014, at this stage we are talking low single digits if oil prices hang here for a while. My view remains the same, if we stay here for too long the chance for a share swap transaction will continue to increase, such a deal will probably happen at a low price, however most of the upside will come from the rebound in the merged company stock when the cycle turns. For all the talk that Penn West assets have always been undervalued, it will be the assets that will save the company in the end.

 

Regards,

Nawar