Transforms Penn West Into A Leading Alberta Oil Producer
CALGARY, June 10, 2016 /CNW/ – PENN WEST PETROLEUM LTD. (TSX – PWT; NYSE – PWE.BC) (“Penn West”, the “Company”, “we”, “us” or “our”) is pleased to announce that it has entered into a definitive agreement for the sale of all of its Saskatchewan assets, including its Dodsland Viking area, for cash consideration of $975 million, subject to normal closing adjustments. The Saskatchewan assets are split approximately evenly between medium and heavy oil properties in the West and the Dodsland light-oil properties in the East. The purchaser is Teine Energy Ltd., a Viking producer backed by the Canada Pension Plan Investment Board.
This transaction, together with additional Alberta asset dispositions for proceeds of approximately $140 million, is expected to close in the second quarter. The total cash consideration from asset dispositions to date in 2016 is approximately $1.3 billion, reducing our pro forma Net Debt to approximately $600 million from $2.1 billion at year-end 2015. As a result, we expect to be comfortably in compliance with all of our financial covenants at the end of the second quarter and the remainder of 2016.
“Saskatchewan is a coveted asset amongst many of our competitors and with this transaction we have capitalized on the demand for high-quality oil assets of scale”, David Dyck, Senior Vice President and Chief Financial Officer of Penn West commented. “This is a pivotal transaction for the Company. While we have made significant progress over the past three years in reducing our total debt, this asset sale results in a markedly improved capital structure and positions the Company in the top tier of our peers in terms of all significant debt metrics. Additionally, the sales metrics received are meaningfully above recent precedent transactions in the area and are very accretive to our shareholders.”
We expect to realize nearly $100 million annually as a result of decreased interest expenses and significant reductions in G&A expenses through this transaction, which more than offsets the loss in net operating income associated with the Saskatchewan properties(1).
The following are some of the key metrics and implied transaction multiples for the Saskatchewan properties based on our full year 2016 forecast:
Production |
13,650 boe/d |
Operating Cost |
$14.75/boe |
Field Netback(1) |
$12.75/boe |
2P Reserves(2) |
53 MMboe |
Implied Production Multiple |
$71,400/boe/d |
Implied Net Operating Income (NOI) Multiple(1) |
15 times |
Implied 2P Reserves Multiple (2) |
$18.40/boe |
(1) Based on actual achieved commodity prices through May 2016 and C$60/bbl Edmonton Par for the balance of 2016 |
|
(2) Based on year-end 2015 working interest reserves |
The effective date of the Saskatchewan assets sale is May 1, 2016 and closing is expected to occur in the second quarter, subject to the receipt of all necessary regulatory approvals and the satisfaction of closing conditions customary in transactions of this nature.
In addition to the sale of its Saskatchewan properties and through a series of transactions, Penn West sold other Alberta properties for proceeds of approximately $140 million with associated 2016 production of 3,100 boe/d.
RBC Capital Markets acted as our exclusive financial advisor on these transactions.
Corporate Update and Transformation to a Leading Alberta Oil Producer
The sale of our Saskatchewan assets is a key element of our transformation strategy allowing us to streamline and high-grade the remainder of our portfolio to once again grow reserves, production and funds flow from operations at a profitable and measured pace.
“While the Dodsland Viking was an important contributor to Penn West’s growth profile in recent years, this transaction will allow us to replace these largely mature assets by funding the more prospective and numerous growth opportunities in our Cardium and Alberta Viking positions; areas where we are more focused and more competitive”, commented Dave Roberts, President and Chief Executive Officer of Penn West. “We forecast that the combination of a concentrated asset portfolio, lower operating cost base, and reduced interest expense burden will allow us to grow the Company’s production by approximately 10% annually well into the next decade, while still generating funds flow from operations in excess of our capital spending, at current commodity prices.”
As we continue to monetize our non-core assets over the balance of the year, our remaining operations will be focused in Alberta as follows:
- Our redefined Cardium area will be focused on our unsurpassed land position encompassing 700 net sections and 1,500 drilling locations, or over 20 years of drilling activity. Our first quarter production in the Cardium area was approximately 19,500 boe/d with operating costs of $10/boe and netbacks of $17/boe. We expect the Cardium to continue driving profitable liquids growth through a combination of waterflood programs, infill drilling and new development for the foreseeable future. Recent production results from Cardium wells in both the Pembina and Willesden Green areas over the last two quarters continue to exceed expectations with production volumes meaningfully above historical type curves. Additionally, this transaction gives Penn West the financial flexibility to begin exploiting the multi horizon potential in our Cardium area. We hold approximately 500 net sections in the Belly River and Mannville formations that we believe are highly prospective. These plays will form part of our development strategy that we will be executing over the next several years.
- In recent years our technical understanding of the Viking play has extended into Alberta through an active farm-out program as well as the exploratory findings and strong production results from offsetting peers. In the Alberta Viking we see the opportunity to replicate our Dodsland experience, with similar strong economics, but with much higher growth potential given the early stage life cycle of the play. While our Alberta Viking first quarter production was only approximately 1,000 boe/d, we expect this area will be an important focus of our 2017 development program and a key growth area in the foreseeable future. Our Alberta Viking position encompasses approximately 174 net sections and has over 500 potential drilling locations.
- The Peace River area is focused on our Peace River Oil Partnership (PROP) with our joint venture partner. We expect this area to remain a stable production and cash generation vehicle for the Company, as approximately 90% of our operating and capital costs are paid for by our partner. Our first quarter net production at Peace River was approximately 5,000 boe/d, 98% weighted to crude oil, with operating costs of $1/boe(3). Additionally, we have had positive results from two thermal pilots in the area and we expect larger scale thermal recovery, in a higher crude oil environment, would allow meaningful recovery of the significant oil potential in our Peace River acreage.
(3) Net of partner carried operating costs
We are continuing to rationalize a number of remaining non-core assets throughout the remainder of the year. We have a number of ongoing asset sale processes, at various stages of completion, and anticipate divesting these remaining high-cost, largely negative net operating income, properties by year-end. Total remaining production expected to be sold is approximately 20,000 boe/d with a range of values expected at $100 million to $200 million. Importantly, these transactions will also reduce the Company’s well count by approximately 5,000 wells and our asset retirement obligation by $200 million.
“Three years ago Penn West embarked on a path to create the most competitive conventional oil producer in Western Canada. The journey was perhaps longer and more difficult than anyone expected as we have experienced the worst crude oil crash in over a decade. We persevered and we can now see the most challenging time in our Company’s history coming to a close. As a result of our actions, we will have reduced debt by over $2.8 billion in the last three years, dramatically lowered our cost structure and meaningfully improved our operational execution. We are very excited to open a new chapter as our focused Alberta operations will create a top quartile Company with a strong and sustainable growth profile, operating costs of $10-$12/boe, and low leverage metrics”, concluded Dave Roberts.
Our second half 2016 development program of $5-10 million is focused on the Peace River area, but we are actively monitoring opportunities to increase spending on optimization and base maintenance activities. We are also reviewing plans to ramp up spending and development activity in the second half of the year as commodity prices continue to strengthen. We will be formalizing our 2017 activity plans in the coming months to profitably grow our production and cash flows. We expect that we will be able to deliver a plan with improved efficiencies, lower costs, and meaningful reserve additions.
Guidance
We expect to provide updated corporate guidance and more details on our 2017 plan in the near future.
Conference Call and Webcast Details
A conference call and webcast presentation will be held to discuss the matters noted above at 10:00am MT (12:00pm ET) on Monday, June 13, 2016.
To listen to the conference call, please dial 647-427-7450 or 1-888-231-8191 (toll-free).
This call will be broadcast live on the Internet and may be accessed directly at the following URL: http://event.on24.com/r.htm?e=1207430&s=1&k=00666B2C392221137490F111C8534AA2
A digital recording will be available for replay two hours after the call’s completion, and will remain available until June 24, 2016 21:59 Mountain Time (23:59 Eastern Time). To listen to the replay, please dial 416-849-0833 or 1-855-859-2056 (toll-free) and enter Conference ID 28666425, followed by the pound (#) key.
About Penn West
Penn West is a conventional oil and natural gas producer in Canada. Our goal is to be the company that redefines oil and gas excellence in western Canada. Based in Calgary, Penn West operates a significant portfolio of opportunities with a dominant oil position in the Cardium, Viking and Peace River areas of Alberta.
Penn West shares are listed on the Toronto Stock Exchange under the symbol “PWT” and on the New York Stock Exchange under the symbol “PWE.BC”.