Penn West Exploration Announces its Financial Results for the Third Quarter Ended September 30, 2011 and 2012 Growth Plan
Nov 3, 2011
CALGARY, Nov. 3, 2011 /CNW/ - PENN WEST PETROLEUM LTD. (TSX: PWT) (NYSE: PWE) ("PENN WEST") is pleased to announce its results for the third quarter ended September 30, 2011
Over the last two years, Penn West has demonstrated the ability to add value through the application of horizontal multi-stage technology to our assets. From the beginning of 2010 to year end 2011, we anticipate increasing our light-oil production to 51 percent of our production from 39 percent and our total liquids production to 66 percent from 57 percent. For 2012, Penn West targets a seven to nine percent annual average production growth rate and a further increase in its liquid weighting prior to the disposition of non-core assets.
2011 Production and Capital
2012 Capital Budget
Dividend, Risk Management and Financing Activities
Through the third quarter, Penn West re-established its operational momentum after severe conditions during the second quarter and into the first part of the third quarter significantly impaired access and operations. By the middle of the third quarter we had 18-20 drilling rigs across our four major light-oil projects as well as on other select high-return targets. Activity levels have shifted to a development focus on our key light-oil plays. Results year-to-date and the completion results from the third quarter are consistent with the information presented earlier this year at our Investor Day. We completed the acquisition of significant complimentary lands based on successful appraisal drilling.
Our activity levels have increased during 2011 as we focus on the development of our light-oil resource plays in the Cardium, Carbonates, Spearfish (Waskada) and the Colorado (Viking). Over the past three years, we implemented horizontal multi-stage fracture technology for substantially all production wells.
We have increased our capital activity, notably in drilling, completions and well equipping, as we move from the appraisal phase into full-scale development at our key light-oil plays across western Canada. To date in 2011, we have sold net production of approximately 1,300 boe per day for net proceeds of $89 million, including the cash consideration paid on business combinations.
Acreage figures are comparable year-over-year as strategic land acquisitions have offset land lease expiries in non-core areas.
COMMON SHARES DATA
Letter to our Shareholders
In some respects the events of the last couple of months have felt like déjà vu. Markets are clouded by debt concerns and commodity prices have fluctuated. We are in a world of financial uncertainty where vacillation has been the order of the day for politicians. Although the market behaviors are the same and some of the financial and monetary circumstances bear similarities, there are distinctive differences from the 2008 banking crisis. In the short term, we anticipate these issues will continue to contribute to market uncertainty and cast a shadow over the prospects for economic growth in Europe.
The impact to Penn West with respect to questions surrounding the plight of the European economy boil down to one specific issue; will these concerns drastically alter demand for oil in the world economy? Even as the European economy has struggled for the past two years, Brent crude pricing has remained above the $100 per barrel mark. Some believe that Europe, even in recession, is unlikely to create a large enough drop in demand to significantly move oil pricing from its current price band. We believe that North America is likely to experience economic growth, albeit moderate, for the next couple of years and that the ultimate driver for a world oil price will continue to be demand growth not only in Asia but in numerous other developing economies. As long as those economic growth conditions prevail, we believe that oil pricing should remain no worse than 'neutral' in the near to mid-term.
To provide certainty for both our dividend and capital programs, we have actively hedged oil through 2012 with this scenario in mind. Just under 60 percent of our revenue for 2012 is secured using costless collars with an average floor price in excess of US$85 per barrel. We have increased our bank facility by $500 million, have expanded our portfolio of private notes, and have a selection of non-core assets currently in the disposition market.
This level of revenue certainty and financial flexibility combined with the maturing of our light-oil prospect inventory allows us to move ahead with our light-oil growth plans for 2012.
We will remain vigilant as the economic stories of 2012 unfold. We will take appropriate action should conditions worsen or strengthen. We have plans in place should those possible scenarios present themselves. Our actions, however, will be driven by the performance of economies and not by the hyperbole which situations like this tend to generate.
On behalf of the Board of Directors,
Murray R. Nunns
This outlook section is included to provide shareholders with information about our expectations as at November 2, 2011 for production and capital expenditures for 2011 and 2012 and readers are cautioned that the information may not be appropriate for any other purpose. This information constitutes forward-looking information. Readers should note the assumptions, risks and discussion under "Forward-Looking Statements".
In 2011, our capital program remained focused on tight-oil development and resource appraisal at our key light-oil plays in the Cardium, Carbonates, Spearfish and Viking. As we move into 2012, we expect to move to full-scale development at these key light-oil plays.
Annual production guidance for 2011 remains unchanged at an average of between 162,000 and 164,000 boe per day. We continue to estimate average production for the second half of 2011 at between 163,000 and 167,000 boe per day with exit production for 2011 between 174,000 and 177,000 boe per day prior to the effect of any asset dispositions.
Our estimated 2012 exploration and development capital program is expected to be in the range of $1.6 to $1.7 billion prior to asset dispositions. Based on this level of capital expenditures, we estimate average production to be approximately 174,000 to 178,000 boe per day for 2012, prior to the effect of asset dispositions.
Our prior production forecast and capital forecast, released on August 10, 2011 with our second quarter results and filed on SEDAR at www.sedar.com was for 2011 average production of 162,000 to 164,000 boe per day and our exploration and development capital budget remains unchanged between $1.4 billion - $1.5 billion, net of asset dispositions.
Private Note Placement
On October 31, 2011, Penn West priced a proposed offering of senior unsecured notes (the "2011 Notes") to be issued on a private placement basis in the United States and Canada with aggregate principal amounts of approximately $135 million (the "Private Placement"). The 2011 Notes are subject to various terms with an average term of approximately 8.1 years and an average fixed interest rate of approximately 4.49 percent. The 2011 Notes will be unsecured and rank equally with Penn West's bank facilities and Penn West's other outstanding senior notes. Subject to the completion of customary closing conditions, the Private Placement is expected to close on or about November 30, 2011. Penn West intends to use the proceeds to repay advances on its bank facility. The 2011 Notes have not been and will not be registered under the United States Securities Act of 1933, as amended (the "Securities Act"), and may not be offered or sold in the United States absent registration or an applicable exemption from the Securities Act.
Non-GAAP Measures Advisory
The above information includes non-GAAP measures not defined under IFRS or previous generally accepted accounting principles ("GAAP"), including funds flow, funds flow per share-basic, funds flow per share-diluted, netback and payout ratio. Non-GAAP measures do not have any standardized meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other issuers. Funds flow is cash flow from operating activities before changes in non-cash working capital and decommissioning expenditures. Funds flow is used to assess our ability to fund dividends and planned capital programs. See "Calculation of Funds Flow" below. Netback is a per-unit-of-production measure of operating margin used in capital allocation decisions and to economically rank projects. Operating margin is calculated as revenue less royalties, operating costs and transportation and is used for similar purposes to netback. Payout ratio is calculated as dividends paid divided by funds flow. We use payout ratio to assess the adequacy of retained funds flow to finance capital programs.
Calculation of Funds Flow
Oil and Gas Information Advisory
Barrels of oil equivalent ("boe") may be misleading, particularly if used in isolation. A boe conversion ratio of six thousand cubic feet of natural gas to one barrel of crude oil is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
In the interest of providing our securityholders and potential investors with information regarding Penn West, including management's assessment of our future plans and operations, certain statements contained in this document constitute forward-looking statements or information (collectively "forward-looking statements") within the meaning of the "safe harbour" provisions of applicable securities legislation. Forward-looking statements are typically identified by words such as "anticipate", "continue", "estimate", "expect", "forecast", "may", "will", "project", "could", "plan", "intend", "should", "believe", "outlook", "objective", "aim", "potential", "target" and similar words suggesting future events or future performance. In addition, statements relating to "reserves" or "resources" are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions, that the reserves and resources described exist in the quantities predicted or estimated and can be profitably produced in the future.
In particular, this document contains forward-looking statements pertaining to, without limitation, the following: our anticipation that from the beginning of 2010 to year end 2011, we will have increased our light-oil production to 51 percent of our production from 39 percent and our total liquids production to 66 percent from 57 percent; our intention in 2012 to target a seven to nine percent annual average production growth rate and a further increase in our liquid weighting prior to the disposition of non-core assets; the disclosure contained under the heading "Strategy", including our belief that we have unrivaled leverage to low-risk, large-scale light-oil development, our belief that our activities since 2009 have provided us with an inventory of drilling locations to fuel light-oil growth well into the future, our intention in 2012 to further shift our capital spending into large scale development in the Cardium, Carbonates, Spearfish and Viking oil trends, our intention (in order to maximize efficiency) to drill on a continuous basis to the fullest extent possible, and our expectation that our resource appraisal activities will be focused on Peace River oil sands, Cordova shale gas, enhanced oil recovery and selected exploratory plays; the disclosure contained under the heading "2011 Production and Capital", including our expectation that our average production for the second half of 2011 will be between 163,000 and 167,000 boe per day, that exit production for 2011 will be between 174,000 and 177,000 boe per day, that annual production for 2011 will average between 162,000 and 164,000 boe per day, the possibility that anticipated property dispositions may impact the forecasted exit production rate depending on closing dates, our expectation that our full-year 2011 exploration and development program, including land related expenditures to date, will remain in the range of $1.4 billion to $1.5 billion, net of asset dispositions, our expectation that in the fourth quarter of 2011 we will deploy an average of 20 to 25 drilling rigs through to break-up in the spring of 2012 to drive our first quarter 2012 production additions and to enhance our efficiencies, and our belief that our continuing portfolio management program, which includes a recently marketed disposition program, could result in up to $400 million of proceeds; the disclosure contained under the heading "2012 Capital Budget", including our expectation that our 2012 capital and operating plan will shift from appraisal activities to development reflecting increased levels of predictability in our plays, our belief that substantially all of our capital programs will be allocated to light-oil plays to deliver both value and production increases, our expectation that our 2012 exploration and development capital program will be in the range of $1.6 to $1.7 billion, our expectation that based on this level of capital expenditures our 2012 average production will be approximately 174,000 to 178,000 boe per day prior to the effect of asset dispositions (which would represent year-over-year growth in annual average production of between seven to nine percent driven largely by light-oil), and our belief that our 2012 hedge positions protect approximately 60 percent of our forecasted 2012 revenues, net of royalties at current future strip commodity prices; all disclosure regarding the details of our fourth quarter dividend; all disclosure relating to our pricing and closing of the 2011 Notes Private Placement, including the proposed aggregate principal amount and terms of such 2011 Notes, the proposed use of the proceeds received from the issuance of the 2011 Notes, and the expected closing date of such Private Placement; our intention to maintain a fleet of 18 to 20 rigs operating through the balance of the year and into 2012; our intention in the Cardium to continue drilling with five rigs for the balance of the year and into 2012; our intention to pursue an aggressive development plan in the Slave Point reservoir; our belief that results in the Spearfish are repeatable and predictable in both productivity and costs, our belief that the expansion of our facility in the area to 14,000 boe per day is on schedule for completion in the first quarter of 2012, and our belief that our development program will be able to fill the facility by the end of 2012; in relation to the Peace River Oil Partnership, our anticipation that the steam oil ratio will be at or less than 2.0 and our plan that the second cycle of steam injection will begin late in the fourth quarter of 2011; in relation to our Cordova play, our expectation that production from the first six wells will come on stream by the end of 2011, and our anticipation of drilling a total of 24 wells (12 net) by the end of 2011; certain disclosures contained in our "Letter to our Shareholders", including our belief that the current economic climate has distinctive differences from the 2008 banking crisis, our view that in the short term, there will be market uncertainty that will cast a shadow over the prospects for economic growth in Europe, our belief that North America is likely to experience economic growth, albeit moderate, for the next couple of years and that the ultimate driver for a world oil price will continue to be demand growth not only in Asia but in numerous other developing economies, our belief that as long as those economic growth conditions prevail, that oil pricing should remain no worse than 'neutral' in the near to mid-term, our belief that our 2012 hedging program provides certainty for both our dividend and capital programs, our belief that just under 60 percent of our revenue for 2012 is secured using costless collars with an average floor price in excess of US$85 per barrel, and our belief that the level of revenue certainty and financial flexibility that results from our hedging activities, debt financing activities and disposition program combined with the maturing of our light-oil prospect inventory will allow us to move ahead with our light-oil growth plans for 2012; certain disclosures contained under the heading "Outlook", including our expectation, as we move into 2012, to move to full-scale development of our key light-oil plays in the Cardium, Carbonates, Spearfish and Viking, our annual production guidance for 2011 of an average of between 162,000 and 164,000 boe per day, our continued estimate that average production for the second half of 2011 will be between 163,000 and 167,000 boe per day with exit production for 2011 between 174,000 and 177,000 boe per day prior to the effect of any asset dispositions, our estimate that our 2012 exploration and development capital program will be in the range of $1.6 to $1.7 billion prior to asset dispositions, our estimate that, based on this level of capital expenditures, our average production will be approximately 174,000 to 178,000 boe per day for 2012, prior to the effect of asset dispositions, and our expectation that our exploration and development capital budget for 2011 will remain between $1.4 billion to $1.5 billion, net of asset dispositions.
With respect to forward-looking statements contained in this document, we have made assumptions regarding, among other things: future crude oil, natural gas liquids and natural gas prices and differentials between light, medium and heavy oil prices; future capital expenditure levels; future crude oil, natural gas liquids and natural gas production levels; drilling results; future exchange rates and interest rates; the amount of future cash dividends that we intend to pay; our ability to obtain equipment in a timely manner to carry out development activities and the costs thereof; our ability to market our oil and natural gas successfully to current and new customers; the impact of increasing competition; our ability to obtain financing on acceptable terms; and our ability to add production and reserves through our development and exploitation activities. In addition, many of the forward-looking statements contained in this document are located proximate to assumptions that are specific to those forward-looking statements, and such assumptions should be taken into account when reading such forward-looking statements: see in particular the assumptions identified under the heading "Outlook".
Although we believe that the expectations reflected in the forward-looking statements contained in this document, and the assumptions on which such forward-looking statements are made, are reasonable, there can be no assurance that such expectations will prove to be correct. Readers are cautioned not to place undue reliance on forward-looking statements included in this document, as there can be no assurance that the plans, intentions or expectations upon which the forward-looking statements are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur, which may cause our actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things: the impact of weather conditions on seasonal demand and ability to execute capital programs; risks inherent in oil and natural gas operations; uncertainties associated with estimating reserves and resources; competition for, among other things, capital, acquisitions of reserves, resources, undeveloped lands and skilled personnel; incorrect assessments of the value of acquisitions, including the completed acquisitions discussed herein; geological, technical, drilling and processing problems; general economic conditions in Canada, the U.S. and globally; industry conditions, including fluctuations in the price of oil and natural gas; royalties payable in respect of our oil and natural gas production and changes thereto; changes in government regulation of the oil and natural gas industry, including environmental regulation; fluctuations in foreign exchange or interest rates; unanticipated operating events or environmental events that can reduce production or cause production to be shut-in or delayed, including wild fires and flooding; failure to obtain industry partner and other third-party consents and approvals when required; stock market volatility and market valuations; OPEC's ability to control production and balance global supply and demand of crude oil at desired price levels; political uncertainty, including the risks of hostilities, in the petroleum producing regions of the world; the need to obtain required approvals from regulatory authorities from time to time; failure to realize the anticipated benefits of dispositions, acquisitions, joint ventures and partnerships, including the completed dispositions, acquisitions, joint ventures and partnerships discussed herein; changes in tax and other laws that affect us and our securityholders; changes in government royalty frameworks; uncertainty of obtaining required approvals for acquisitions and mergers; the potential failure of counterparties to honour their contractual obligations; and the other factors described in our public filings (including under "Risk Factors" in our Annual Information Form and in Note 10 to our 2011 third quarter unaudited financial statements) available in Canada at www.sedar.com and in the United States at www.sec.gov. Readers are cautioned that this list of risk factors should not be construed as exhaustive.
The forward-looking statements contained in this document speak only as of the date of this document. Except as expressly required by applicable securities laws, we do not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this document are expressly qualified by this cautionary statement.
Penn West shares and debentures are listed on the Toronto Stock Exchange under the symbols PWT and PWT.DB.F and Penn West shares are listed on the New York Stock Exchange under the symbol PWE.
A conference call will be held to discuss Penn West's results at 10:00am Mountain Time (12:00pm Eastern Time) on November 3, 2011.
To listen to the conference call, please call 416-695-6622 or 1-800-769-8320 (North America toll-free). This call will be broadcast live on the Internet and may be accessed directly on the Penn West website at www.pennwest.com or at the following URL: http://events.digitalmedia.telus.com/pennwest/110311/index.php
A taped recording will be available until November 10, 2011 by dialing 1-800-408-3053 (North America toll-free) and entering pass code 1440223.
Penn West expects to file its Management's Discussion and Analysis and unaudited interim consolidated financial statements on SEDAR and EDGAR shortly.
For further information: