CALGARY, Aug. 4, 2016 /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 second quarter ended June 30, 2016. All figures are in Canadian dollars unless otherwise stated.
Three months ended June 30 |
Six months ended June 30 |
||||||||||
2016 |
2015 |
% change |
2016 |
2015 |
% change |
||||||
Financial (millions, except per share amounts) |
|||||||||||
Gross revenues (1,2) |
$ |
209 |
$ |
360 |
(42) |
$ |
440 |
$ |
700 |
(37) |
|
Funds flow (2) |
5 |
47 |
(89) |
94 |
159 |
(41) |
|||||
Basic per share (2) |
0.01 |
0.09 |
(89) |
0.19 |
0.32 |
(41) |
|||||
Diluted per share (2) |
0.01 |
0.09 |
(89) |
0.19 |
0.32 |
(41) |
|||||
Funds flow from operations (2) |
55 |
85 |
(35) |
102 |
162 |
(37) |
|||||
Basic per share (2) |
0.11 |
0.17 |
(35) |
0.20 |
0.32 |
(38) |
|||||
Diluted per share (2) |
0.11 |
0.17 |
(35) |
0.20 |
0.32 |
(38) |
|||||
Net loss |
(132) |
(28) |
>100 |
(232) |
(276) |
(16) |
|||||
Basic per share |
(0.26) |
(0.06) |
>100 |
(0.46) |
(0.55) |
(16) |
|||||
Diluted per share |
(0.26) |
(0.06) |
>100 |
(0.46) |
(0.55) |
(16) |
|||||
Capital expenditures (3) |
1 |
64 |
(98) |
19 |
255 |
(93) |
|||||
Net Debt (4) |
$ |
566 |
$ |
2,205 |
(74) |
$ |
566 |
$ |
2,205 |
(74) |
|
Operations |
|||||||||||
Daily production |
|||||||||||
Light oil and NGL (bbls/d) |
30,421 |
51,275 |
(41) |
35,497 |
51,859 |
(32) |
|||||
Heavy oil (bbls/d) |
11,427 |
11,947 |
(4) |
11,934 |
12,418 |
(4) |
|||||
Natural gas (mmcf/d) |
130 |
168 |
(23) |
137 |
172 |
(20) |
|||||
Total production (boe/d) (5) |
63,568 |
91,164 |
(30) |
70,289 |
93,024 |
(24) |
|||||
Average sales price |
|||||||||||
Light oil and NGL (per bbl) |
$ |
49.66 |
$ |
58.05 |
(14) |
$ |
40.99 |
$ |
52.05 |
(21) |
|
Heavy oil (per bbl) |
25.18 |
46.44 |
(46) |
19.75 |
38.06 |
(48) |
|||||
Natural gas (per mcf) |
$ |
1.42 |
$ |
2.78 |
(49) |
$ |
1.70 |
$ |
2.93 |
(42) |
|
Netback per boe (5) |
|||||||||||
Sales price |
$ |
31.20 |
$ |
43.84 |
(29) |
$ |
27.38 |
$ |
39.53 |
(31) |
|
Risk management gain (loss) |
4.27 |
(0.49) |
>100 |
5.08 |
1.51 |
>100 |
|||||
Net sales price |
35.47 |
43.35 |
(18) |
32.46 |
41.04 |
(21) |
|||||
Royalties |
(0.63) |
(4.72) |
(87) |
(0.87) |
(4.51) |
(81) |
|||||
Operating expenses (6) |
(12.70) |
(18.15) |
(30) |
(12.87) |
(18.38) |
(30) |
|||||
Transportation |
(1.89) |
(1.40) |
35 |
(1.75) |
(1.37) |
28 |
|||||
Netback (2) |
$ |
20.25 |
$ |
19.08 |
6 |
$ |
16.97 |
$ |
16.78 |
1 |
(1) |
Includes realized gains and losses on commodity contracts and excludes gains and losses on foreign exchange hedges. |
(2) |
The terms “gross revenues”, “funds flow”, “funds flow from operations” and their applicable per share amounts, and “netback” are non-GAAP measures. Please refer to the “Calculation of Funds Flow and Funds Flow from Operations” in the attached Management Discussion and Analysis and “Non-GAAP Measures” sections below. |
(3) |
Capital expenditures include costs related to Property, Plant and Equipment and Exploration and Evaluation. Includes the effect of capital carried by partners. |
(4) |
Net debt includes long-term debt and includes the effects of working capital and all cash held or cash offered for prepayment to lenders. |
(5) |
Please refer to the “Oil and Gas Information Advisory” section below for information regarding the term “boe”. |
(6) |
Includes the effect of carried operating expenses from its partner under the Peace River Oil Partnership of $3 million or $0.52 per boe (2015 – $3 million or $0.36 per boe) for the three months ended and $7 million or $0.55 per boe (2015 – $6 million or $0.36 per boe) for the six months ended. |
President’s Message
Penn West recorded a notable second quarter and demonstrated the very strong investment case I believe the company presents. We delivered solid results in our operations and executed a key de-levering event that removes the long-standing debt overhang from the company. We are well on our way to completing the repositioning of our Company as a very focused, very profitable, liquids growth story in western Canada.
Amidst the market uncertainty, our teams stayed focused on the core business to deliver exceptional operational results. Second quarter production of 63,568 boe per day exceeded consensus estimates through a combination of the continued strong performance from Cardium wells drilled last winter and an improvement in the reliability of our base production. Additionally, our ongoing focus on reducing our cost structure allowed us to economically produce volumes that had been previously earmarked to be shut-in.
Second quarter operating expenses of $12.70 per boe, net of carry, came in meaningfully below expectations as a result of operating efficiencies in our well programs leading to a decrease in operating costs and additional overall cost savings, experienced both internally and at a macro level, which resulted in actual results below our initial estimates. Additionally, in the first half of 2016, we deferred several discretionary expenses, primarily related to turnarounds and workover activities, which we believe will result in a modest increase in operating costs in the second half of the year.
In the second quarter, the Company executed a number of asset dispositions, including the sale of its core Slave Point and Saskatchewan properties that dramatically de-levered the balance sheet and realized meaningful value for our shareholders. These dispositions, combined with signed agreements for an incremental $75 million in sales proceeds subsequent to the quarter, reduced our pro-forma Net Debt to approximately $491 million from $2.1 billion at year-end 2015. As a result, we have confirmed our compliance with all of our financial covenants and removed the going concern note previously included in our first quarter financial statements. Importantly, our markedly improved capital structure positions us competitively with our peers in terms of all significant debt metrics.
We will continue to streamline and high-grade the remainder of our portfolio this year in the final steps of our transformation into a leading Alberta oil producer. In the second half of this year, we expect to dispose of non-core assets with associated production of approximately 20,000 boe per day and generate between $100 million and $200 million in proceeds. We remain confident in our ability to sell these assets, as is evidenced by incremental signed agreements subsequent to the quarter.
We are excited to demonstrate the asset quality and strong economics of our core Cardium, Alberta Viking, and Peace River areas. We will take full advantage of our improved financial flexibility now afforded to us and are getting back to work on our future. As a result, we are increasing our capital expenditure program by approximately $40 million, fully paid for by full year funds flow from operations, to restart development in the Cardium and Alberta Viking. We plan to drill 5 wells in the Cardium, 11 wells in the Alberta Viking, and 19 gross wells in the Peace River area. We expect our second-half drilling program to add approximately 3,000 boe per day to our 2016 exit production and set us up for continued growth into next year.
Our teams have conducted a review of our preliminary 2017 plans and anticipate spending up to $150 million in total capital, including decommissioning expenditures, next year. The Cardium will remain the foundation of our development program supported by incremental growth in the Alberta Viking and meaningful cash generation at Peace River. Next year’s program will deliver core production growth of at least 10% from the fourth quarter of 2016 to the fourth quarter of 2017 and will be fully paid for by funds flow from operations.
We can already see the promise of a focused portfolio with our high quality, long life positions in the Cardium, Alberta Viking and Peace River areas. Our second-half 2016 program sets the stage for a long term vision of a top quartile Company with consistent production growth of at least 10% annually, fully funded by funds flow from operations, operating costs of $10 to $12 per boe, and low leverage metrics.
Financial and Operational Highlights
- As at June 30, 2016, we were in compliance with all of our financial covenants under our lending agreements. Senior Debt to EBITDA was 3.9 times, relative to a 5.0 times limit. Our Net Debt was $566 million, a decrease from $2.1 billion at December 31, 2015. In 2016, we closed several asset dispositions for total proceeds of approximately $1.3 billion, which led to a significant improvement in our balance sheet and a reduction in long-term debt. This disposition activity resulted in compliance with all financial covenants at June 30 and as we expect to remain compliant as we move forward, we have removed the going concern note included in our first quarter 2016 financial statements.
- On June 30, 2016, we had excess cash totaling $374 million from disposition proceeds that we can offer to our lenders at our discretion. We anticipate applying this cash to reduce our outstanding debt balance during the second half of the year. Assuming these proceeds were offered to lenders as a pro rata pre-payment, pro-forma Senior Debt to EBITDA at June 30, 2016 would have been 2.3 times.
- Production in the second quarter averaged 63,568 boe per day, ahead of our expectations, primarily due to continued strong production results from our last winter drilling program. Additionally, fewer wells were shut-in than previously anticipated, which also contributed to our production results coming in ahead of expectations. Production in our core areas was approximately 24,000 boe per day in the second quarter.
- Operating costs per boe, net of carry, were $12.70 during the second quarter as we successfully progressed on a number of strategies to reduce operating costs, with a specific focus on reducing repair & maintenance and workover activities. Additionally, we continued to benefit from cost reductions across the industry and efficiencies within our organization resulting in actual costs coming in below our estimates. In the first half of 2016, we deferred several discretionary expenses, primarily turnarounds and workover activities, into the second half of the year, which contributed to our operating costs coming in ahead of expectations thus far in 2016.
- During the second quarter of 2016, we closed several asset dispositions for total proceeds of approximately $1.3 billion. These dispositions included our interests in Slave Point, all of our Saskatchewan properties, and several non-core Alberta assets. We plan to sell the remainder of our non-core assets, with associated production of approximately 20,000 boe per day, by the end of the year.
- Subsequent to the end of the second quarter, we have entered into agreements to sell certain non-core assets as we continue to progress through our disposition initiatives. Estimated proceeds from these dispositions total approximately $75 million with associated average production of approximately 6,000 boe per day. These dispositions would reduce our pro-forma Net Debt to $491 million.
- In the second half of this year, we plan to resume our development activities in our core areas. We are increasing our full year 2016 capital budget by approximately $40 million to $90 million, plus $15 million allocated for decommissioning expenditures. We expect the accelerated second half development program will increase our 2016 exit production by approximately 3,000 boe per day.
- We expect full year 2016 production to average 55,000 – 57,000 boe per day in total, prior to the effect of additional dispositions, and 22,000 – 24,000 boe per day in our core areas. Full year operating costs are expected to average between $13.50 and $14.50 per boe and full year G&A costs are expected to average between $2.50 and $2.90 per boe.
Select Metrics in Core Areas
The table below outlines select metrics in our core areas for the six months ended June 30, 2016 and excludes the impact of hedging:
Area |
Select Metrics – Six Months Ended June 30, 2016 |
|||
Production |
Liquids Weighting |
Operating Cost |
Netback |
|
Cardium |
18,500 boe/d |
68% |
$8.50/boe |
$24.00/boe |
Alberta Viking |
1,000 boe/d |
40% |
$10.50/boe |
$5.50/boe |
Peace River(1) |
5,000 boe/d |
98% |
$1.00/boe |
$13.50/boe |
Total Core |
24,500 boe/d |
73% |
$7.00/boe |
$21.00/boe |
(1) |
Net of carried operating costs |
Operated Development Activity
During the second quarter, Penn West performed a comprehensive review of its core assets, particularly the growth potential of the Cardium and Alberta Viking. The analysis reaffirmed that Penn West’s assets are able to deliver strong economic returns in the current commodity price environment and supports further development of its core plays in the Cardium and Alberta Viking, which remain profitable on a full cycle basis.
The table below provides a summary of our operational activity during the second quarter:
Number of Wells |
||||||
Drilled |
Completed |
On production |
||||
Gross |
Net |
Gross |
Net |
Gross |
Net |
|
Cardium |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Alberta Viking |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
Peace River |
2.0 |
1.1 |
2.0 |
1.1 |
2.0 |
1.1 |
Total Core |
2.0 |
1.1 |
2.0 |
1.1 |
2.0 |
1.1 |
The additional financial flexibility provided through the meaningful asset dispositions in the quarter has allowed the Company to restart development drilling in the second half of the year. We are increasing our capital budget by approximately $40 million this year to focus on the Cardium and Alberta Viking.
We conducted a preliminary review of our 2017 development plans and anticipate spending up to $150 million in total capital, including decommissioning expenditures next year. The majority of the spending focus will be on primary and integrated development in the Cardium area. We expect to continue primary development of the Alberta Viking and maintain production levels in Peace River. We expect the 2017 program will be fully funded through funds flow from operations and will deliver core production growth of at least 10% from the fourth quarter of 2016 to the fourth quarter of 2017.
Cardium
In the Cardium, we plan to drill two wells in the J-Lease area of the Pembina and three wells in the Willesden Green area in the second half of 2016.
In the J-Lease area, our first quarter project to replace seven kilometers of pipeline to improve reliability of the gas gathering system has continued to generate positive results. Since completion of the project, production reliability in the area has improved. We plan to drill two wells in the area in the second half of the year. These wells are located in close proximity to wells drilled last year that continue to exceed expectations. Waterflood implementation through the cemented liner system is proceeding in the J-Lease area in the second half of 2016 to further support our existing well base, and is expected to improve overall project economics.
In the Crimson Lake area of Willesden Green, we plan to drill and complete three wells in the second half of the year. An existing well will be converted to a water injector well in order increase reservoir pressure and support production from offsetting wells. Our Crimson wells drilled in the fourth quarter of last year continue to perform well ahead of the type curve, making these wells some of our most productive Cardium wells drilled to date.
Alberta Viking
In the Alberta Viking, we plan to drill 11 wells in the Esther area in the second half of 2016. The 11 wells will be drilled and completed using a longer one-mile wellbore design. This lateral design was previously used in the Dodsland area of the Viking in the first quarter of 2016, which led to reductions in finding and development costs. We expect our technical expertise and experience in the Saskatchewan Viking will directly transfer into success in our second half Alberta Viking program.
Peace River
In collaboration with our joint venture partner, we are running a two-rig program in the Peace River area this year. In the second quarter, we drilled and brought on production two wells (1.1 net), bringing our well on production well count to 12 wells (6.6 net) for the year. We expect to drill 19 wells (10.5 net) in the second half of 2016. Approximately 90 percent of our working interest expenditures continue to be paid by our partner.
In the second quarter, we entered into a multi-year gas supply agreement with a subsidiary of Kineticor Resources Corp. in support of a proposed 100MW power plant in the Peace River area of Alberta. Upon completion, this power project will allow us to meet our associated gas conservation targets in the area and will significantly reduce our environmental impact.
Senior Secured Debt
In the second quarter, we closed asset dispositions for total proceeds of approximately $1.3 billion, reducing our Net Debt to approximately $566 million from $2.1 billion at year-end 2015, which is outlined as follows:
As at |
As at |
|
(millions) |
June 30, 2016 |
December 31, 2015 |
Syndicated bank facility and senior notes |
$1,535 |
$1,940 |
Cash |
($1,003) |
($2) |
Working capital deficiency (1) (2) |
$34 |
$184 |
Net debt |
$566 |
$2,122 |
Disposition proceeds subsequent to the second quarter of 2016 |
($75) |
– |
Pro-forma net debt |
$491 |
$2,122 |
(1) |
Includes Accounts receivable, Other current assets and Accounts payable and accrued liabilities. |
(2) |
Includes $3 million of working capital surplus included in Assets held for sale. |
Subsequent to the quarter, we entered into agreements to sell an additional $75 million in non-core assets further decreasing our pro-forma Net Debt to approximately $491 million.
We continue to remain in compliance with all our financial covenants at June 30, 2016, including the Senior Debt to EBITDA covenant that was 3.9 times, relative to a 5.0 times limit. On June 30, 2016, we had additional excess cash totaling $374 million from disposition proceeds that we can offer as a pre-payment to our lenders at our discretion (Saskatchewan disposition proceeds already offered). Assuming these proceeds were offered to lenders as a pre-payment, pro-forma Senior Debt to EBITDA at June 30, 2016 would have been 2.3 times.
We anticipate remaining compliant with all our financial covenants for the foreseeable future and so we have removed the going concern note included in our first quarter 2016 financial statements.
The table below outlines the calculation of our Senior Debt to EBITDA covenant as at the end of the second quarter:
Twelve months ended |
|
(millions, except ratios) |
June 30, 2016 |
Funds Flow |
$115 |
Financing |
$163 |
Realized gain on foreign exchange hedges on prepayments |
($15) |
Realized foreign exchange loss – debt prepayments |
$79 |
Restructuring expenses |
$39 |
EBITDA |
$381 |
EBITDA contribution from assets sold (1) |
($145) |
EBITDA as defined by debt covenants |
$236 |
Total senior notes |
$1,193 |
Syndicated bank facility advances |
$342 |
Total long-term debt |
$1,535 |
Repayment from disposition proceeds (2) |
$(627) |
Letters of credit – financial (3) |
$9 |
Total senior debt |
$917 |
Senior Debt to EBITDA |
3.89x |
(1) |
Consists of EBITDA contributions from assets that have been disposed in the prior 12 months. |
(2) |
Was offered to noteholders prior to June 30, 2016 and repaid in July 2016. |
(3) |
Letters of credit that are classified as financial are included in the Senior Debt calculation per the debt agreements. |
In June 2016, upon the close of the Company’s Saskatchewan Viking disposition, the Company offered the $967 million of net proceeds received from this disposition for prepayment of outstanding senior notes and repayment of indebtedness on the Company’s syndicated bank facility on a pro rata basis. The offer was fully accepted and the pro rata syndicated bank facility allocation of $340 million was repaid in late June 2016. The remaining $627 million was subsequently prepaid in July 2016 to holders of its senior notes. This pre-payment excluded the above-mentioned $374 million of cash on hand at June 30, 2016 that we still have the ability to offer as a pro rata pre-payment to our lenders in the future.
Updated Hedging Position
Our hedging program continues to help reduce the volatility of our funds flow from operations, and thereby improves our ability to align capital programs going forward. We target having hedges in place for approximately 25 percent to 40 percent of our crude oil exposure, net of royalties, and 40 percent to 50 percent of our gas exposure, net of royalties.
Our positions as of August 4, 2016 are as follows:
Q3 2016 |
Q4 2016 |
Q1 2017 |
Q2 2017 |
Q3 2017 |
Q4 2017 |
2018 |
|
Oil Volume (bbl/d) |
6,000 |
6,000 |
3,000 |
– |
– |
– |
– |
C$ WTI Price (C$/bbl) |
$71.07 |
$71.24 |
$69.37 |
– |
– |
– |
– |
Gas Volume (mmcf/d) |
19 |
19 |
17 |
15 |
13 |
11 |
4 |
AECO Price (C$/mcf) |
$2.96 |
$2.96 |
$3.02 |
$2.73 |
$2.74 |
$2.99 |
$2.89 |
Updated 2016 Guidance and 2017 Preliminary Look
Due to the additional financial flexibility afforded the Company through the debt reduction efforts to date, and supported by our high confidence in the economic potential of our core assets, we will be resuming development in the Cardium and Alberta Viking in the second half of 2016. We are increasing our full year capital budget by approximately $40 million to $90 million, plus $15 million allocated to decommissioning expenditures. As a result, we expect to increase our 2016 exit production by approximately 3,000 boe per day. Our 2016 capital budget will be fully paid for by full year funds flow from operations.
We forecast full year 2016 production to average 55,000 – 57,000 boe per day in total, prior to the effect any dispositions subsequent to the second quarter. Full year production is expected to average between 22,000 – 24,000 boe per day in our core areas. Full year corporate operating costs are forecasted to average between $13.50 and $14.50 per boe and G&A costs are forecasted to average between $2.50 and $2.90 per boe.
Our guidance for the 2016 is as follows:
Metric |
Guidance Range |
|
Average Corporate Production (1) |
boe/d |
55,000 – 57,000 |
Average Core Area Production |
boe/d |
22,000 – 24,000 |
E&D Capital Expenditures |
$ millions |
$90 |
Decommissioning Expenditures |
$ millions |
$15 |
Corporate Operating Costs (1) |
$/boe |
$13.50 – 14.50 |
G&A Costs |
$/boe |
$2.50 – $2.90 |
(1) Prior to the effect of any dispositions subsequent to the second quarter. |
We have conducted a review of our preliminary 2017 plans and anticipate spending up to $150 million in total capital, including decommissioning expenditures, next year. The Cardium will remain the foundation of our development program supported by incremental growth in the Alberta Viking and meaningful cash generation at Peace River. We expect next year’s program will deliver core production growth of at least 10% from the fourth quarter of 2016 to the fourth quarter of 2017 and will be fully paid for by funds flow from operations.
Conference Call and Webcast Details
A conference call and webcast presentation will be held to discuss our second quarter results at 9:00am MT (11:00am ET) on Thursday, August 4, 2016.
To listen to the conference call, please call 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=1227225&s=1&k=457F15D57D0452CCBB474A66CC24EF0E