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Penn West Energy Trust (PWE) |
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WIKI ANALYSIS
Penn West Exploration NYSE:PWE TSX:PWT 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).
Operations
In 2010 production was 49% medium/light oil, 40% natural gas (relatively shallow depth) and 11% heavy oil. The natural gas liquids are mostly ethane, propane and butane. The company uses CO2 miscible flooding at two large light oil fields. Its properties are located throughout Western Canada, many of them contain large in place resources that can only be tapped when extraction technologies become more efficient. For the 2010 ninth month period cash flow was $914 million, $49 million less than 2009 nine month period.[1]
Production
For the first three quarters of 2010 daily production averaged 164,123 boe/d representing a 7.4% decrease from the same period in 2009 (177,221). For the decade (2000-2010) production peaked in 2008 when it was around 190,000 boe/d (189,462 first nine months of 2008).[1]
Business Financials
Revenue fell substantially in 2009, down to $2.4 billion from $4.0 billion in 2008. The change was mostly from falling oil and gas prices (production was only 7.4% lower but prices were volatile, mostly lower.
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.
Competition
In Saskatchewan it competes with Crescent Point Energy (most of Crescent Point's operations are in Saskatchewan and involve light oil). Cenovus Energy is one of the largest companies operating in Saskatchewan.
References
- ↑ 1.0 1.1 Penn West Energy Q3 2010 Report (2010).
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