Penn West Petroleum: Buy This Oil StockPWE) announced second quarter ended June 30, 2016 total revenue of $209 million, down 42 percent year-over-year from $360 million during the same period last year and down 9.5 percent sequentially from $231 million in first quarter of 2016.
Penn West Petroleum declared second quarter of 2016 net loss of $132 million or $0.26 of loss per diluted share compared to a net loss of $100 million or $0.20 of loss per diluted share in the sequential first quarter of 2016 and a net loss of $28 million or $0.06 of loss per diluted share in second quarter of 2015.
The global energy exploration and production company reported continued sequential and year-over-year decline in its top line primarily driven by the ongoing weaker global commodity demand and pricing environment somewhat offset by the continuing slow but steady recovery in the international energy demand.
Maintaining its financials
Penn West is uniquely maintaining a solid financial position with attractive senior debt maturity profile.
Further, Penn West is focused on continued disposition of its non-core assets and in line with its continued commitment to lower its debt while successfully executing on its ability to operate on performance delivering transactions amid tough global commodity demand and pricing environment. Importantly, the company has achieved approximately $1.6 billion of total debt reduction year-till-date with about $491 million of consolidated second quarter of 2016 debt compared to nearly $2.1 billion of total debt during the fourth quarter of 2015.
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Penn West has impressively and completely complied with all its financial agreements by the end of second quarter of 2016 that includes senior debt-to-EBITDA agreement of 3.9x compared to the limit of 5.0x. In addition, the company has $374 million of net cash accessible for prepayment of debt coupled with 2.3x of pro-forma senior debt-to-EBITDA multiple. Going forward, Penn West is believed to uniquely comply with all its financial agreements in predictable future.
Importantly, the company achieved $55 million of net cash flow from operations during the second quarter of 2016 that was greater than the sequential first quarter of 2016 mainly driven by weaker operating costs. Further, total revenue impact remained neutral with superior commodity pricing somewhat offset by weaker production owing to strategic dispositions.
Penn West seems consistently focused on sustaining a healthy financial position through strategic disposition of non-core assets while controlling both core and non-core capital expenditures to emerge strongly from the continuing tough global commodity demand and pricing environment.
Improving the performance
The well-planned hedging program of Penn West is continuing to assist in minimizing the volatility of the company’s operating cash flows and thus, improving upon its capability to uniquely align its capital allocation program with its long-term growth plans, moving ahead. Penn West targets on developing unique hedges for about 25% to 40% of its overall crude oil revelation, total of royalties coupled with about 40% to 50% of its net gas revelation, total of royalties during the active year and under the existing market conditions.
The phase 1 of Penn West’s balance sheet optimization through strategic asset sales is now complete with the company now set to uniquely execute the phase 2 of the planned asset disposition. Going forward, Penn West estimates they will execute contracts for about $75 million of extra dispositions with related production of nearly 6,000 boe/d and thus, estimates total production of about 20,000 boe/d with expected value in the range of $100 million to $200 million. Also, a step change is expected in the prospective cost structure and liability.
Penn West is expected to be having a highly-competitive financial position being supported by the company’s strategic commodity hedging program and extensive asset disposition schedule to minimize its net debt while strengthening its cash position.
Overall, the investors are advised to “Hold” their position in Penn West Petroleum Ltd. considering the company’s significant long-term growth prospects with assets being placed attractively but, currently weaker financial position with notable total debt of $1.19 billion against weaker total cash position of $775.92 million only, restricting the company to continue with its daily operations profitably. The profit margin of 0.00% is disappointing and indicate no profit. However, the PEG ratio -0.46 seems misguiding and depicts no growth but decline.
Published on Sep 8, 2016By Subhen Mittra