The steps taken today by Penn West are essential to insuring
the company survival and its long term future, and they also demonstrate the value of a competent
and proactive management team. Most importantly the company is finally
re-sizing itself to solely focusing on its 54K barrels of core assets,
something I pushed for in my discussions with the CEO:
|
Cardium
Greater Viking
Slave Point(1)
|
29,500 boe/d
18,500 boe/d
6,000 boe/d
|
66%
87%
97%
|
$14.50/boe
$16.00/boe
$20.00/boe
|
$21.50/boe
$23.50/boe
$25.00/boe
|
|
Total
Core
|
54,000 boe/d
|
76%
|
$15.50/boe
|
$22.50/boe
|
I am also very pleased to see the company detail the nature
and production of its non-core assets:
|
Swan
Hills
NE BC & NW AB
East Central AB
Mitsue
PROP
Weyburn
Other
|
8,000 boe/d
8,000 boe/d
7,000 boe/d
4,500 boe/d
3,000 boe/d
2,500 boe/d
1,000 boe/d
|
76%
8%
41%
78%
97%
100%
55%
|
|
Total
Non-Core (1)
|
34,000 boe/d
|
56%
|
From a quick look, I believe the aggregate value of the non-core
assets listed above is $1.2B to $1.5B, and if the company was to slowly divest
those assets over the next five quarters Penn West debt will be reduced
materially, while the value of its remaining core assets will increase substantially. I expect $200m to $300m of non-core assets to close in Q4 should WTI average at least $50+.
Once the oil market re-balances in late 2016 to early 2017
Penn West will likely emerge as a Whitecap size operator with low debt, strong
operating metrics and with an attractive inventory rich asset base in Canada’s best
tight oil basins. At $1B in debt and 54K in core Cardium/Viking/Slave Point production,
the resulting entity could easily achieve an $80K-$90K per flowing valuation or
$6.60 to $7.70 per share (Canadian), with further upside as the core assets are
further developed in a normalized oil price environment.
The above does not take in consideration the company
prospective acreage in the Duvernay and the company substantial tax credits. I
believe anyone betting on the demise of Penn West in 2016 is sorely disappointed
today as the company position itself to manage through an extremely low oil price environment
while still offering shareholders incredible upside once the oil market recovers.
Regards,
Nawar
