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PWE - Penn West Petroleum


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5 minutes ago, SharperDingaan said:

Thinking a year from now, they will be part of someone else. At about 3-4x where they are today, net of the take-out premium on an all-stock transaction. Higher still, if elevated WTI prices allow them to dispose of PR. Along with most others, our preferance is for stock over cash.

 

In todays low emmissions environment,  PR's heavy cold flow, positive FCF, and the ability to ramp up production via SAGD, make it an attractive asset. We will all see just how much positive FCF, when OBE reports Q2 earnings.

 

All good.

 

SD

 

 

  

Don't think they're going to be doing too much with their PR asset anytime soon. Management's plan has been to focus on their Cardium holdings. You're right though, at today's prices the PR asset is looking quite attractive. I know they attempted a sale of it a couple years ago which was blocked by their Chinese partner, perhaps a sale at a higher price this year or next could be achieved. 

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Posted (edited)

They announced the PR sale May 2019, for 97M - the termination announcement was August 2019. Today most would expect 200M+, the proceeds to wipe out 1/2 the existing debt, Cardium continuing as is, the Viking lands sweetening the dowry, and a very healthy take-out premium. 

 

SD

 

Edited by SharperDingaan
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11 hours ago, SharperDingaan said:

They announced the PR sale May 2019, for 97M - the termination announcement was August 2019. Today most would expect 200M+, the proceeds to wipe out 1/2 the existing debt, Cardium continuing as is, the Viking lands sweetening the dowry, and a very healthy take-out premium. 

 

SD

 

Yeah, it would be great if they can sell the PR assets at >USD200M now, but isn't that hinging on what the Chinese partner thinks?  Last time it was the Chinese partner that decided to veto the sale in the last minute.  

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Posted (edited)

The partnership has gone on for many years now, and the Chinese partner is no longer the neophyte that they were. At present, production cannot be maintained/grown unless OBE puts new money into it - and all new OBE money will be going into Cardium for the duration.

 

Lot of ways it could go, but most would expect a 2 step process. The Chinese partner funds new development, taking the partnership to 55/45, from 45/55. OBE then sells its 45% stake in the much higher production, with the partner having right of first refusal. OBE just needs to demonstrate movement, an actual sale is not really required - whoever takes OBE out, simply sells the 45% to fund their new acquisitions drilling budget.

 

Not a big reach.

 

SD  

Edited by SharperDingaan
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https://www.obsidianenergy.com/press-releases/obsidian-energy-announces-early-start-to-second-half-development-program-and-corporate-update-webcast/   - from this morning

 

IMO, CIC vetoed last sale because the new partner was really suspect.  Suspect in that would they survive and would they put the capital in.   It was a devil you know better than the devil you do not know.

 

I think SD is right, CIC defiantly wants this asset developed.  And we are not doing it.  So, it is logical that something should happen here.   TMX comes online in a couple years and will ensure those tight differentials.   We are probably in no hurry to sell it because its value continues to increase as we get closer to TMX.    

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https://seekingalpha.com/article/4434244-obsidian-energy-has-a-pathway-to-escape-its-debt-issues

 

Someone on SeekingAlpha agrees on the debt reduction outlook, and comes to the conclusion that it'd be worth $4 or $5 once it gets the debt reduced.  

 

He didn't mention the possibility of selling the Peace River asset, so I'm assuming if that happens this year then the debt goes down far ahead of the schedule laid out in the SA article and it gets to a good chunk higher than $5 within the year.  Also, Summer is coming and everyone is aching to get out and travel after being cooped up a year, so demand for gas should stay high through the summer, supporting a higher price per barrel.  Is that basically the current Bull case or am I missing any extra parts of it?

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The SA author has been consistently far off the mark, for a very long time. OBE's current 2021 guidance is as at USD 55-65/bbl - today the market is well over that, going higher, and 2H drilling has been moved forward. 

 

The bull case is valuation reset to peer equivalents, plus a premium for no-hedges and potential asset sales, plus a hefty premium for an all equity take-out. Comparables are not participating in the WTI rally (hedges), OBE is a growth story, and on the block.

 

SD

 

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Tombstone marker:

Jun-18-2021 current price of CAD 3.92, USD 71.35 WTI

Per OBE Deck: CAD 6.72 if priced at peer comparables, CAD 13.38 if priced at 2P USD 65/WTI

 

How long did it take to cross CAD 6.72, and CAD 13.38?

What was the sequence of events?

 

SD

 

 

210616-Obsidian-AGM-Presentation-F-UD.pdf

Edited by SharperDingaan
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At USD 70 WTI, PR netbacks are almost the same as those of Cardium. The chinese partner would more likely want a majority interest with sales proceeds contributed to new drilling. Plus a right of first refusal on OBEs minority portion, as/when OBE opts to sell. 

 

If the 55% stake is worth 200M, 100% is worth 364M (200/.55). To take the existing chinese stake from 45% to 55%, they must pay OBE 36.4M for the additional 10% of PR. OBE contributes the 36.4M as their 45% portion of new drilling costs, and the Chinese partner puts up 44.4M to make a total of 80.8M (36.4/.45). That will fund 1-2 rigs for a year, produce more flowing barrels for both parties, and drop OBE's debt/EBITDA like a brick - as additional earnings are booked from those additional barrels.

 

Just another indicator as to how far off the mark todays market analysts actually are. 

 

SD

 

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