Is Penn West Petroleum Ltd (USA) (NYSE:PWE) Trying to Avoid Bankruptcy?

Penn West Petroleum Ltd (USA) (NYSE:PWE) shares rose 37.31% on Monday after the company announced sales of two major assets.

Penn West Petroleum Ltd (USA) (NYSE:PWE) shares were up 37.31% to $1.26 on Monday as the company managed to avoid default through the sale of properties in the Dodsland Viking area of Saskatchewan and Albertan properties. Prior to this, the company had reported total debt of $1.8 billion as of March 31, 2016. Its market cap is at $597.22 million at 502.16 shares outstanding.

Penn West Petroleum is an exploration and production company that operates in the segment of exploring for, developing and holding interests in oil and natural gas properties, and related production infrastructure in the Western Canada Sedimentary Basin directly and through investments in securities of subsidiaries holding such interests. It also owns the petroleum and natural gas assets or over 100% of the equity, directly or indirectly, of the entities that carry on the remainder of the oil and natural gas business of the company.

By selling its properties in the Dodsland Viking area of Saskatchewan, assets that produce over 13,000 barrels of oil per day, Penn West Petroleum was able to gain $975 million. Its sale of certain Albertan properties with current production of around 3,100 barrels per day earned it $140 million.

With that, the company has enough additional cash to pay off a huge portion of its existing debt. Of course this doesn’t ensure that Penn West Petroleum can be able to pay off the balance but it does take a considerable burden off their shoulders.

Keep in mind that these properties sold also comprise the company’s low-cost main production sites which also contribute considerable revenues. These assets comprise approximately 20% of the company’s production but could be worth more now that crude oil gains are picking up steam. Still, having cash on hand could be more crucial for Penn West Petroleum at this point and it could eventually gain from stronger revenues from its other remaining properties.

 

DISCLAIMER: There is a substantial risk of loss with any speculative asset, especially small cap stocks. The opinions expressed are those of the author, and do not constitute recommendations to buy or sell a stock. Do your own research before committing capital.

James Peters has spent the last decade constructing algorithms designed to identify small cap opportunities with a favourable risk profile. He was educated in Paris, France, and now lives with his wife and two children in Manhattan.

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