Why Is Penn West Petroleum Case Study
Penn West Petroleum
Penn West Petroleum (PWE) has been going through a lean patch since long. Even before the most recent oil price collapse started last year, Penn West was in trouble. Its balance sheet has been laden with debt as a result of some grave acquisition mistakes that it made in 2008. Now, the company is left with the sole option of selling off some its assets to reduce that debt burden. But it is not going to get a fair price for those assets in the current environment. Consequently, even after the recent rounds of asset sales, Penn West has a net debt of $ 1.8 billion against a meagre cash flow of $ 50 million last quarter.
The stock of Penn West had been continuing its six month long downtrend till the end of September. Apart …show more content…
We believe that Penn West has been able to win some of the investor confidence by taking some debt reduction measures. We have heard two announcements about asset sales within the one month period from 1st Sep to 1st Oct. On Sep 15, the company announced sale of Mitsue properties for $ 192.5 million while on Oct 1, it announced the sale of its Non-Operated 9.5 % Working interest in the Weyburn unit for $ 205 million. Now, that is a lot of cash and will bring down the net debt to about $ 1.4 billion. Thus these announcements are definitely behind the recent upsurge of PWE. In addition to that, crude oil prices (WTI) have also shown signs of recovery and are trending between $ 45 and $ 50 since nearly two months …show more content…
And therefore they have announced further actions in response to current commodity price environment. First, the company will be limiting its capital expenditures to funds flow from operations by year end 2015. Secondly, it has already announced a suspension of dividends and compensation to the executives to retain as much cash as possible. Third thing, the company will be reducing its cost structure. It will be cutting its total workforce by 35 % by the end of the year. This move alone will save nearly $ 45 million per year although it will attract a certain one-time severance
Penn West Petroleum (PWE) has been going through a lean patch since long. Even before the most recent oil price collapse started last year, Penn West was in trouble. Its balance sheet has been laden with debt as a result of some grave acquisition mistakes that it made in 2008. Now, the company is left with the sole option of selling off some its assets to reduce that debt burden. But it is not going to get a fair price for those assets in the current environment. Consequently, even after the recent rounds of asset sales, Penn West has a net debt of $ 1.8 billion against a meagre cash flow of $ 50 million last quarter.
The stock of Penn West had been continuing its six month long downtrend till the end of September. Apart …show more content…
We believe that Penn West has been able to win some of the investor confidence by taking some debt reduction measures. We have heard two announcements about asset sales within the one month period from 1st Sep to 1st Oct. On Sep 15, the company announced sale of Mitsue properties for $ 192.5 million while on Oct 1, it announced the sale of its Non-Operated 9.5 % Working interest in the Weyburn unit for $ 205 million. Now, that is a lot of cash and will bring down the net debt to about $ 1.4 billion. Thus these announcements are definitely behind the recent upsurge of PWE. In addition to that, crude oil prices (WTI) have also shown signs of recovery and are trending between $ 45 and $ 50 since nearly two months …show more content…
And therefore they have announced further actions in response to current commodity price environment. First, the company will be limiting its capital expenditures to funds flow from operations by year end 2015. Secondly, it has already announced a suspension of dividends and compensation to the executives to retain as much cash as possible. Third thing, the company will be reducing its cost structure. It will be cutting its total workforce by 35 % by the end of the year. This move alone will save nearly $ 45 million per year although it will attract a certain one-time severance