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Msg  14403 of 21771  at  9/2/2015 6:58:01 PM  by


The following message was updated on 9/2/2015 6:58:24 PM.

 In response to msg 14390 by  Nawaralsaadi
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Re: Weyburn Unit-Nawar

Thank you, Nawar,

I'm actually more bullish than you are after the last CC. In fact this is the 1st call I really liked since I started following Penn West after Nov 2013 ER. I didn't like all ERs and CCs before I invested and even after I pulled a trigger back in January.

The reason - all reports and calls did not carry full information. I felt there were always some hidden information the company didn't want to disclose. In 2014 the sustainability ratio was 102% meaning that Penn West basically operated within funds flow. However the management never disclosed why they carried large working capital deficit while operated within funds flow.

For example in the Q1 2015 report they indicated ~$2.4b total debt and I never felt that was true because they didn't provide the Net Debt Bridge. They've drawn $200mm from banks account despite $112mm in FFO vs $191mm in capex, or $79mm only deficit

In the Q2 2015 report we've been finally informed that actual total debts at the end of Q1 were $2.7b!!! including $274mm in WC deficit. So they reduced long term debt by only ~$200m in Q2 with the help of FX gain, FX settlement and low capex despite asset sale of $415mm. Remaining was put to remove WC deficit.
In other words I never knew what to expect after next asset sales - debts would be reduced partially or by a full proceeds amount.

During recent CC they finally said firmly the intention to operate within FFO as many other companies said. The recent info about $750 undrawn facility confirmed they did it even in the very difficult current quarter. $450mm drawn was even lower than $484mm at the end of Q2, albeit I still expect some WC deficit to incur.

"The action taken by Penn West yesterday is an example of steps undertaken to prevent a zero outcome, while limiting the upside outcome."
Your statement is very conservative. I don't see the limiting upside outcome until any additional assets are sold. And the management didn't rush to sell currently.
I also concur with your entire assessment except specific timing and prices. 
"The best non-core assets will be liquidated at 30% discount to what they were worth in 2014 (Weyburn, Swan Hills.)."
As they clearly indicated they will be waiting for better prices. I believe "better" means in the $70-75 long term range, that was OPEC has agreed for their target. At such target prices non-core assets could be sold at 10-15% discounts to 2014 Fall IMHO or even at PAR as many producers should withdraw assets for sale at $65 WTI or higher.
"The quality and the extent of their non-core assets will insure that enough will be liquidated to materially change the debt dynamics...
Penn West will emerge as a Viking, Cardium and Slave Point focused mid-size player with low debt and very attractive IRRs even in a long term $60 to $70 WTI oil world. This smaller, less indebted player will be worth substantially more than where we are trading today (mid to high single digits)."
I agree with everything you put together. My only major difference in thinking is the magnitude of some definitions. I believe that selling Weyburn for $220mm will not be "material". I believe that selling ALL non-core for $1b could be necessary, but would  not be "material".
In my book the "material" debt reduction would be selling entire non-core portfolio of assets for $1.5b leaving Cardium, Viking, Slave point and Duvernay with $700mm debts. That $700mm Penn West would be the low debt player.
I'm not saying it is possible, just saying it'd be material to become the low debt player, and this is the real goal. The closer we get to that amount the higher potential for PWE/PWT stock will be in a few years.
Best wishes,

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14424 Re: Weyburn Unit- centsible 1 9/3/2015 10:46:43 AM

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