Penn West Petroleum: an Oil Stock to Buy

Penn West Petroleum (PWE) fourth quarter ended December 31, 2015 with gross revenue of $273 million, down 42 percent year-over-year from $473 million during the same period last year.

Penn West declared fourth quarter of 2015 operating cash flows of $36 million or $0.07 per diluted share, down 75 percent year-over-year from $142 million or $0.29 per diluted share in the fourth quarter of 2014.

Positive moves

The upstream oil and natural gas company reported continued decline in both its top and bottom lines primarily due to the ongoing weaker global commodity demand and pricing environment, negatively impacting the company’s key margins despite significant cost-cutting initiatives being undertaken by the energy mining corporation.

Going forward into 2016, there are several favorable developments that might support the overall industry shift to better demand and pricing.
The energy demand in the US is recovering rapidly as against China where the demand is still low. However, considering the huge market size of China coupled with other key Asian markets, the energy demand from complete Asia is believed to grow manifolds and thus, benefiting all the major energy producers including, Penn West.

Crude oil production in the U.S. averaged approximately 9.4 million barrels per day (b/d) during 2015, and total oil production for the US is forecasted to be an average 8.7 million b/d for 2016 and nearly 8.2 million b/d for 2017. According to EIA, crude oil production for February is estimated at an average 9.1 million b/d that was about 80,000 b/d lower than that in January.

The slow but steady improvement in global commodity demand and pricing across the globe is forecasted to take longer to achieve the zenith demand and pricing level which might further force all the key upstream companies to avoid any major capital expenses and delaying the quarterly dividend distributions while saving enough of cash flows to just break even with the daily operational expenses.


Overall, the investors are advised to “Sell” any equity held in Penn West Petroleum Ltd. considering slow global recovery of commodity demand and pricing along with the company’s weaker financial position with significant total debt of $1.64 billion and poor total cash position. The profit margin of -227.69% also indicates no profit but loss. The PEG ratio of -0.22 signifies no growth but decline.
Published on May 9, 2016
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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