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Davy Bui

PWE AT A GLANCE

P/E ► 5.26 LOW EV/EBITDA ► 3.35 LOW ROA ► 11.1% AVG ROE ► 17.5% AVG Debt to Equity ► 0.839 AVG Current Ratio ► 1.04 AVG Interest Coverage Ratio ► 7.65 HIGH

 

 

 

 

 

 

Revenue, Net Income, and Net MarginRevenue, Gross Profit, and Gross MarginOperating IncomeEbitIncome Before TaxesNet Income from Continuing OpsInterest vs Continuing IncomeInterest CoverageOperating ExpensesSG&AAmortization & Depreciation

Penn West Energy Trust is a Canadian Royalty trust specializing in oil and gas production. Canadian trusts are specialized business structures that are mandated to emphasize production and realizing capital (i.e. making money and paying unit holders) rather than a normal corporation’s business cycle. Trusts are able to pass most of earnings to unit holders with favorable tax treatment. Penn West have several oil and natural gas fields in western Canada, with a mix that is about 60-70% oil. They mainly focus on producing their reserves (as opposed to exploration), sometimes focusing on enhanced oil recovery techniques (EOR).

[edit] Business Financials

Penn West Energy (PWE) recently released Q3 2008 earnings.

Highlights (all figures in Canadian dollars unless otherwise noted):

• Due to the acquisitions, y/y comparisons may be misleading so I will be focusing on changes from Q2 2008. Keep in mind prices hit records in the beginning of Q3 (US$145) and now sit under US$60:
• Operating cash flow (OCF) came in at $1.58 per share (+21% y/y but -11% from Q2) while free cash flow (FCF) weighed in at $0.97 per share (+67% y/y, -17% from Q2). For those who prefer funds flow, FFO per share was $1.70, +19% y/y and -15% from Q2. Similar to last quarter, capex came in a little light at 59% of depreciation & amortization. The company stated that 20% of capital spending focused on areas with potential for organic growth but produce no immediate results.
• Other than the hedges falling out, the company’s balance sheet held steady. Management mentioned that the credit crisis may curtail access to capital markets but they have $1.5B available from a credit facility. The average term of their debt is 9 years so the financial fall-out shouldn’t hit them too hard.
• As expected, much of the hedging losses from last quarter reversed into big gains in Q3. Net prices realized came in at $71.54 per BOE, down 5.4% from Q2. Netback margins keep sliding, down to 52.1% for Q3 from 54.6% in Q2 and 61.8% Q3 2007. I’ll be interested to see what these look like after the big drop in prices and as capacity gets reduced, which should alleviate labor cost pressure.
• In keeping with recent patterns, production, at 191k BOE/day, fell short of projections of 195k - 205k BOE/day, ostensibly due to unplanned maintenance activities.

[edit] References