Penn West Announces Its Financial And Operational Results For The First Quarter Ended March 31, 2015

CALGARY, April 30, 2015 /CNW/ – PENN WEST PETROLEUM LTD. (TSX – PWT; NYSE – PWE) (“Penn West“, the “Company“, “we“, “us” or “our“) is pleased to announce its financial and operational results for the first quarter ended March 31, 2015. All figures are in Canadian dollars unless otherwise stated.

PRESIDENT’S MESSAGE

Penn West’s first quarter results provide a clear indication of the Company’s ability to execute and perform in a challenging and volatile commodity cycle. We have established a strong platform for this enterprise to accomplish excellence through all cycles. We remain disciplined and focused to achieve our goals and deliver on our targets and I am confident we are making important and positive steps to ensure a strong future for Penn West and provide our shareholders with long-term value.

In the first quarter, we delivered average production of 94,905 boe per day, which was within the range of 2015 annual average guidance, and generated funds flow of $112 million ($0.22 per share). Penn West’s multi-asset portfolio, improved inventory readiness and reduced cost structures, provided optionality to adopt a development plan that was flexible and adaptive in a cyclical commodity price environment. Notably, we successfully brought a total of 68 wells on production versus a budget of 54 reflecting our continuous efforts to drive toward a higher standard of excellence and remain best-in-class in our core areas.

I am very pleased and excited about our recent announcement regarding the sale of royalty interests for expected proceeds of $321 million. It further demonstrates Penn West’s ability to deliver a significant result in a challenging market environment. Proceeds from the transaction will be used to pay down debt upon closing which is expected to occur in May and further strengthens our financial flexibility.  We will continue to seek strategic and accretive transactions in our efforts to reduce debt and strengthen the balance sheet.

I would reiterate that we intend to revisit our second half capital program by mid-year as we continue to expect near-term volatility in commodity markets.  We believe it is prudent to defer this decision to ensure capital is allocated with greatest efficiency and to maximize profit. As such, our 2015 guidance remains unchanged. Interestingly, the commodity price environment has improved in recent weeks and is now reasonably consistent with our 2015 budget pricing assumptions of C$65 per barrel for oil, which is the predominant driver in our capital allocation decisions.

We continue to work toward finalizing the previously announced amending agreements with our noteholders and lenders. In support of those efforts and on the expectation that the near-term may prove volatile, you will note in our financials that we have put a floor of approximately $50 per barrel on a nominal amount of crude oil on short-term contracts through our risk management program. All financial instruments and risk management programs will be closely monitored and strategically implemented to position the Company for long-term success and also balanced to maximize the benefit from a recovery in crude oil prices.

As we plan for second half 2015, Penn West will continue to have an acute focus and discipline on the factors within our control, working to create value through efficiencies and cost savings throughout the enterprise, and we will strive to deliver even greater predictability and reliability in our operations and continue to set a higher standard for oil and gas excellence in western Canada.

FINANCIAL AND OPERATIONAL HIGHLIGHTS

• Production in the first quarter averaged 94,905 boe per day consistent with 2015 forecast average production guidance which  remains unchanged from 90,000 to 100,000 boe per day.
• Funds flow for the first quarter of 2015 was $112 million ($0.22 per share – basic) compared to $269 million ($0.55 per share – basic) in the comparative period in 2014. The decrease in funds flow is mainly due to a weaker commodity price environment and lower production volumes due to asset dispositions. This was partially offset by lower operating and general and administration expenses as a result of implementing successful cost reduction initiatives and proceeds from the monetization of certain hedges.
• Net loss was $248 million in the first quarter of 2015 compared to a net loss of $89 million in the first quarter of 2014. The net loss in 2015 was due to a reduction in revenues primarily due to a lower commodity price environment and unrealized foreign exchange losses as the US dollar strengthened against the Canadian dollar.
• Development capital expenditures were $191 million during the first quarter of 2015 compared to $195 million in the first quarter of 2014. Drilling activities were focused in the Cardium and Viking plays. Expected full year 2015 development expenditures remain unchanged at $625 million.
• As at March 31, 2015, the Company was in compliance with all financial covenants under its lending agreements and it had $1.5 billion of undrawn capacity under its bank facility. The Company is currently finalizing the amending agreements with its lenders and noteholders to, among other things, amend its financial covenants, and which is expected to be finalized during the second quarter of 2015.
• In April 2015, Penn West announced it had entered into an agreement to sell an 8.5 percent gross overriding royalty in its working interests in a portion of the Viking play located in the Dodsland area of Saskatchewan as well as certain of its existing royalties and mineral title lands located in Alberta, Saskatchewan and Manitoba across a variety of plays. Total cash consideration is $321 million, before normal closing adjustments. Closing is expected to occur on or about May 6, 2015, subject to the receipt of regulatory approvals and the satisfaction of customary closing conditions. The proceeds will be used to reduce outstanding long-term debt.

OPERATED DEVELOPMENT ACTIVITY

First quarter development activities were consistent with fourth quarter 2014 from a spend and pace perspective. Penn West’s multi-asset portfolio, improved inventory readiness and cost structures provided optionality to adopt a development plan that was flexible and adaptive in a cyclical commodity price environment. The Company invested development capital of approximately $155 million (over 81 percent of total capital in the quarter) and drilled a total of 63 (62.6 net) light oil wells with a success rate of 100 percent. Of these, 34 (34.0 net) wells were drilled in the Viking, 27 (26.6 net) wells were drilled in the Cardium and two (2.0 net) wells were drilled in the Slave Point. Over 90 percent of all net wells drilled were in our core light oil areas as detailed in Table 1 below.

Table 1: First Quarter 2015 Core Area Light Oil Development Summary

PLAY UPDATES

Cardium

As previously forecast, Penn West invested development capital of approximately $104 million in the quarter and drilled 27 (26.6 net) wells and brought 30 (29.7 net) wells on production. Of the wells drilled in the quarter, 14 (14.0 net) were drilled in Willesden Green, four (4.0 net) in Easyford, four (3.6 net) in Pembina Cardium Unit (“PCU”) #9, and five (5.0 net) in J-Lease. The Company also invested capital expanding two existing batteries in PCU #9 and in J-Lease. The capacity was built to handle incremental production and water injection volumes and prepares those areas for future development in the second half 2015 program and beyond.

With variability across regions in the Cardium play, we continued to test different well designs and completion techniques to optimize cost and performance based on reservoir characteristics. Generally, the southern areas are more advanced than regions in the north from an optimization perspective.  In the south at Willesden Green, slickwater is the standard frac fluid and the team continues to optimize tonnage having moved toward 20 ton from 25 ton fracs. We will continue to test performance on longer lateral wells selectively in this area through 2015. In the north at Pembina, on the drilling side of operations teams are testing various well designs and on the completions side, focusing on optimizing frac tonnage and currently utilize a combination of slickwater and hybrid fracs.

With drilling cycle time and absolute cost reduction targets achieved in our core Cardium and Viking programs, teams are now focused on delivering better wells for similar or lower costs while maintaining performance. Going forward, the Company will measure and report this performance on unit of cost measures of dollars per meter drilled and dollars per frac stage.

In the Willesden Green program, teams delivered average drilling and completion (“D&C”) costs of $768 per meter drilled and $175,788 per frac stage in the first quarter of 2015, compared with average costs of $769 per meter drilled and $177,576 per frac stage in the first quarter of 2014. The average well length has remained constant in the 3,700 meter range over the same time frame.

In the first quarter of 2015, the Pembina program delivered average D&C costs of $606 per meter drilled and $103,353 per frac stage. This compares with average costs of $699 per meter drilled and $115,544 per frac stage in the first quarter of 2014. The average well length has increased in this area from 3,300 meters to approximately 3,750 meters over the same time frame.

Viking

During the first quarter of 2015, approximately $44 million of capital was invested in development activities in the Viking area. Penn West had one rig operating and drilled 34 wells in the quarter. The Viking remains the Company’s most economic play which resulted in additional capital being deployed in response to the low commodity price environment. The Viking teams set a new benchmark for the Company in the quarter by completing and bringing a record 38 wells on production. Despite extreme swings in weather in the quarter (lows of -40C and highs of +10C) and the high level of activity, the program was delivered without a single lost time injury, another testament to the high standard of excellence being demonstrated at Penn  West.

The Viking program delivered average D&C costs of $476 per meter drilled and $55,355 per frac stage which compares with average costs of $513 per meter drilled and $50,858 per frac stage in the first quarter of 2014. The average well length has remained consistent in this area at approximately 1,500 meters over the same time frame.

With a focus on continuously improving efficiency and performance while reducing costs, the Viking team tested completions techniques that utilized 12 frac stages of 12 tons each versus 15 stages of 15 tons each that had been commonly used. Wells that were completed using this new design are expected to be brought on production post spring break-up and will be monitored for initial and sustained performance before being more broadly utilized.

The Company also initiated its first horizontal waterflood program in the quarter, converting eight existing horizontal producers to water injectors and commenced injection. Over time, as reservoir pressures are optimized, the Company expects that these programs will mitigate natural declines and increase the ultimate recovery of light oil resource in our core light oil areas.

Slave Point

Activity in the Slave Point was limited. Penn West invested development capital of $7.5 million and drilled and cased two (2.0 net) wells, one in Otter and one in Red Earth to retain lands. These wells will be completed and tied-in at a later time as economic conditions improve.

DRILLING STATISTICS

CAPITAL EXPENDITURES

During the first quarter of 2015, we continued with our development plans in Cardium and Viking areas consistent with our long-term plan.

LAND

COMMON SHARE DATA

Outlook

This outlook section is included to provide shareholders with information about Penn West’s expectations as at April 29, 2015 for production, funds flow and capital expenditures in 2015 and readers are cautioned that the information may not be appropriate for any other purpose. This information constitutes forward-looking information. Readers should note the assumptions, risks and discussion under “Forward-Looking Statements” and are cautioned that numerous factors could potentially impact Penn West’s capital expenditure levels and production and funds flow performance for 2015, including fluctuations in commodity prices and its ongoing asset disposition program.

There have been no changes to the Company’s guidance for its 2015 forecast average production of 90,000 to 100,000 boe per day and forecast funds flow of $500 million to $550 million (based on C$65/bbl oil, C$3.25/mcf gas and $1.15 USD/CDN exchange rate assumptions), as originally disclosed in its December 17, 2014 press release. The 2015 Capital Budget remains unchanged at $625 million as outlined in the Company’s December 17, 2014 press release.

All press releases are available on Penn West’s website at www.pennwest.com, on SEDAR at www.sedar.com, and on EDGAR at www.sec.gov.

Non-GAAP Measures Advisory

Certain financial measures including funds flow, funds flow per share-basic, funds flow per share-diluted, netback and gross revenues included in this press release do not have a standardized meaning prescribed by International Financial Reporting Standards (“IFRS”) and therefore are considered non-GAAP measures; accordingly, they may not be comparable to similar measures provided by other issuers. Funds flow is cash flow from operating activities before changes in non-cash working capital and decommissioning expenditures. Funds flow is used to assess the Company’s ability to fund dividend and planned capital programs. See “Calculation of Funds Flow” below for a reconciliation of funds flow to its nearest measure prescribed by IFRS. Netback is the per unit of production amount of revenue less royalties, operating expenses, transportation and realized risk management gains and losses, and is used in capital allocation decisions and to economically rank projects. See the table at the beginning of this press release for a calculation of the Company’s netbacks. Gross revenue is total revenues including realized risk management gains and losses and is used to assess the cash realizations on commodity sales.

Calculation of Funds Flow

[expand title=”Advisories & Contact”]Oil and Gas Information Advisory

Barrels of oil equivalent (“boe”) may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of natural gas to one barrel of crude oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy equivalency conversion ratio of 6:1, utilizing a conversion on a 6:1 basis is misleading as an indication of value.

Forward-Looking Statements

Certain statements contained in this document constitute forward-looking statements or information (collectively “forward-looking statements”) within the meaning of the “safe harbour” provisions of applicable securities legislation. Forward-looking statements are typically identified by words such as “anticipate”, “continue”, “estimate”, “expect”, “forecast”, “budget”, “may”, “will”, “project”, “could”, “plan”, “intend”, “should”, “believe”, “outlook”, “objective”, “aim”, “potential”, “target” and similar words suggesting future events or future performance. In addition, statements relating to “reserves” or “resources” are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves and resources described exist in the quantities predicted or estimated and can be profitably produced in the future. In particular, this document contains forward-looking statements pertaining to, without limitation, the following: under “President’s Message”, our belief that we are making important and positive steps to ensure a strong future and provide our shareholders with long-term value, use of proceeds from the sale of the royalty interests and the proposed closing date and the strengthening of financial flexibility due to that transaction, seeking strategic and accretive transactions in our efforts to reduce debt and strengthen the balance sheet, intention to revisit the second half capital program and the pricing assumptions required in making those decisions, working towards finalizing the amending agreements with the noteholders, monitoring of and strategic implementation of all financial instruments and risk management programs to position for long-term success and maximize the benefit from a recovery in crude oil prices and planning for the second half of 2015, with focus and discipline, creating efficiencies and cost savings and deliver greater predictability and reliability in operations; under “Financial Operational Highlights”, 2015 development expenditures, finalizing the agreements reached in March 2015 with lenders under the syndicated credit facility and noteholders under the senior, unsecured notes and closing of the sale of the royalty interests; under “Play Updates”, our intention to test performance on longer lateral wells selectively in the Cardium area and north at Pembina testing various frac fluids and combinations of slickwater and hybrid fracs, delivering better wells for similar or lower costs while maintaining performance and the measurement and reporting of this performance; in the Viking, wells that were completed using new designs expected to be brought on production post spring break-up and in connection with the reservoir pressures being optimized on certain horizontal wells using the waterflood program, expectations of mitigation of natural declines and increase the ultimate recovery of light oil in cored light oil areas; in Slave Point, the tie-in of two wells once economic conditions improve; and under “Outlook”, the amount of our 2015 development capital expenditures budget, the funds flow and our forecast 2015 average daily production levels.

With respect to forward-looking statements contained in this document, we have made assumptions regarding, among other things: the terms and timing of asset sales to be completed under our ongoing program to sell non-core assets; our ability to execute our long-term plan as described herein and in our other disclosure documents and the impact that the successful execution of such plan will have on our Company and our shareholders; the economic returns that we anticipate realizing from expenditures made on our assets; future crude oil, natural gas liquids and natural gas prices and differentials between light, medium and heavy oil prices and Canadian, WTI and world oil and natural gas prices; future capital expenditure levels; future crude oil, natural gas liquids and natural gas production levels; drilling results; future exchange rates and interest rates; the amount of future cash dividends that we intend to pay and the level of participation in our dividend reinvestment plan; our ability to execute our capital programs as planned without significant adverse impacts from various factors beyond our control, including weather, infrastructure access and delays in obtaining regulatory approvals and third party consents; our ability to obtain equipment in a timely manner to carry out development activities and the costs thereof; our ability to market our oil and natural gas successfully to current and new customers; our ability to obtain financing on acceptable terms, including our ability to renew or replace our credit facility and our ability to finance the repayment of our senior unsecured notes on maturity; and our ability to add production and reserves through our development and exploitation activities. In addition, many of the forward-looking statements contained in this document are located proximate to assumptions that are specific to those forward-looking statements, and such assumptions should be taken into account when reading such forward-looking statements: see in particular the assumptions identified under the heading “Outlook”.

Although we believe that the expectations reflected in the forward-looking statements contained in this document, and the assumptions on which such forward-looking statements are made, are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned not to place undue reliance on forward-looking statements included in this document, as there can be no assurance that the plans, intentions or expectations upon which the forward-looking statements are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur, which may cause our actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things: the possibility that we are unable to execute some or all of our ongoing non-core asset disposition program on favourable terms or at all, whether due to the failure to receive requisite regulatory approvals or satisfy applicable closing conditions or for other reasons that we cannot anticipate; the possibility that we will not be able to successfully execute our long-term plan in part or in full, and the possibility that some or all of the benefits that we anticipate will accrue to our Company and our securityholders as a result of the successful execution of such plan do not materialize; the impact of weather conditions on seasonal demand; the impact of weather conditions on our ability to execute capital programs; the risk that we will be unable to execute our capital programs as planned without significant adverse impacts from various factors beyond our control, including weather, infrastructure access and delays in obtaining regulatory approvals and third party consents; risks inherent in oil and natural gas operations; uncertainties associated with estimating reserves and resources; competition for, among other things, capital, acquisitions of reserves, resources, undeveloped lands and skilled personnel; incorrect assessments of the value of acquisitions; geological, technical, drilling and processing problems; general economic and political conditions in Canada, the U.S. and globally; industry conditions, including fluctuations in the price of oil and natural gas, price differentials for crude oil and natural gas produced in Canada as compared to other markets, and transportation restrictions, including pipeline and railway capacity constraints; royalties payable in respect of our oil and natural gas production and changes to government royalty frameworks; changes in government regulation of the oil and natural gas industry, including environmental regulation; fluctuations in foreign exchange or interest rates; unanticipated operating events or environmental events that can reduce production or cause production to be shut-in or delayed, including extreme cold during winter months, wild fires and flooding; failure to obtain regulatory, industry partner and other third-party consents and approvals when required, including for acquisitions, dispositions and mergers; failure to realize the anticipated benefits of dispositions, acquisitions, joint ventures and partnerships, including those discussed herein; changes in tax and other laws that affect us and our securityholders; the potential failure of counterparties to honour their contractual obligations; stock market volatility and market valuations; OPEC’s ability to control production and balance global supply and demand of crude oil at desired price levels; political uncertainty, including the risks of hostilities, in the petroleum producing regions of the world; and the other factors described in our public filings (including our Annual Information Form) available in Canada at www.sedar.com and in the United States at www.sec.gov. Readers are cautioned that this list of risk factors should not be construed as exhaustive.

The forward-looking statements contained in this document speak only as of the date of this document. Except as expressly required by applicable securities laws, we do not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this document are expressly qualified by this cautionary statement.[/expand]