alertmeipp Posted January 24, 2014 Share Posted January 24, 2014 well, they can get FCF is they cut capex and dividend. But then their ebitda will drop. FCF is just one of the metrics to consider. Link to comment Share on other sites More sharing options...
Myth465 Posted January 24, 2014 Share Posted January 24, 2014 Thanks Myth for reply If you take a net back of $45 per barrel then subtract $20 per barrel to replace the barrel you sold for net back of $45, would what is left or $25 per barrel be FCF or cash available for dividends ,growth , debt payments or share buy backs? Otherwise No FCF = bad business and perhaps would be better off elsewhere Look at it as Cash Flow or Funds Flow from operations. Penn West has an extensive inventory to drill. But existing production drops each year by 25% - 30% though natural decline. You have to spend a big chunk of capital to replace that production. You also have wells which could yield IRRs between 30% and 65% - Better to drill those than pay out the cash. Link to comment Share on other sites More sharing options...
biaggio Posted January 24, 2014 Share Posted January 24, 2014 Myth + Alert My concern would be how much is left over after replacing production drop. Would PWT be using up all the EBIT to pay for the DA of EBITDA i.e. is there something left over for shareholders. If there is not much left i.e. your spending all your fund from operation to replace the production drop, then PWT not worth as much as I thought . I like that they have a large inventory. (a hidden asset perhaps?) Can they turn it into cash in your opinion? I would not mind at all if they did not pay any of it as a dividend. If they can derive $45 from a barrel of oil i.e. netback. (would this not be funds from operation) Then they spend $20 to replace that barrel (finding and developing cost) Is there not $25 left available for dividend, debt repayment, acquisition, buyback, etc I am just trying to understand the economics of this industry. Sorry I don t mean to be obstinate. Link to comment Share on other sites More sharing options...
alertmeipp Posted January 24, 2014 Share Posted January 24, 2014 I like to think the remaining inventory (acres proven with infrastructure) and production as the assets they are building using the cash flow. To make a extreme case, if they don't drill any new wells, cap exp will be lower, FCF will jump, but the production will drop 20-30% annually until it stops. So although you wont see any FCF all the way to 2018, the future production stream (higher #) will be a much more valuable than current. Link to comment Share on other sites More sharing options...
biaggio Posted January 24, 2014 Share Posted January 24, 2014 I like to think the remaining inventory (acres proven with infrastructure) and production as the assets they are building using the cash flow. To make a extreme case, if they don't drill any new wells, cap exp will be lower, FCF will jump, but the production will drop 20-30% annually until it stops. So although you wont see any FCF all the way to 2018, the future production stream (higher #) will be a much more valuable than current. I am ok if they grow their inventory + production by spending the netback. To grasp the economic value of the company I guess I am trying to separate the capex into maintenance capex + growth capex in order to justify future share price. In other words if they produce a barrel of oil and net back $45 as in their presentation. They can spend say $20 on replacing the barrel they just used up and the other $25 on increasing their inventory. production and infrastructure => does this seem reasonable? If this is how it works then I can see why you would want to pay 5X operating cash flow because you spend half on maintenance and other half on growth projects (exploration, infrastructure) Oil and gas has to be a great business because many have made great fortunes from it. I would like to feel I am getting a great deal. Link to comment Share on other sites More sharing options...
Uccmal Posted January 24, 2014 Share Posted January 24, 2014 I was buying yesterday. I am not an expert on the industry but have followed it for 15 years. Biaggio, I can excuse it with small E&P companies but with companies the size of Pennwest there MUST be a dividend of substantial size. These companies are not the same as an Amazon, or EBay, or Google where the business grows over time, and you can see a growing asset. So they must pay a dividend or I wont invest. If they are not generating distributable cash flow after their capex, and opex, then the value of the business is zero. The land is worthless if you cannot generate distributable cash. Therefore the PPE, and the company are worth zero. Subject to someone else coming along who thinks they can improve the situation, of course. My simplified take on the situation. Dave Roberts seems to grasp this. Rick George certainly does and he has spent 8 million on stock at higher prices than today. Link to comment Share on other sites More sharing options...
tengen Posted January 24, 2014 Share Posted January 24, 2014 Insiders have been buying, including Rick George: http://canadianinsider.com/node/7?menu_tickersearch=pwt Link to comment Share on other sites More sharing options...
Cardboard Posted January 24, 2014 Share Posted January 24, 2014 "cardboard are you still on board at pennwest?" Sure, but who am I? I was the idiot who bought an initial position in the $11 range and then doubled down at what looked like the low before the last few days... All the signals seem to point in the right direction except that the market for asset sales remains very weak. The price obtained was very low for these assets. I understand Roberts rationale based on his presentation but, a low price remains a low price. This combined with a reduction of another 4,000 boe/day on the already shocking low production forecast for 2014 really spooked the market. The story has not changed much at all here. The price of entry is only better and with it your eventual rate of return. I bought too early, paid too much from what it is now, but I still think that in 2 or 3 years that the overall return will be quite good. And that is if the guys at CNQ, Suncor and other large firms don't take it out sooner. There is still after all high demand for light products out in Alberta due to the large oil sands production growth (pipeline shipping and refining). And when you look at the CDN$ price lately and their assumption of $89 CDN per barrel of light oil, then you start understanding that this company is pretty cheap now. Regarding their cash flow long term forecast, I would assume that they will hit them close. You still can't be right on since too many prices can vary. However, as long as they target best in class costs and with the assets that they have, it should look fine. This Roberts guy is a chemical/process guy. Not a mine finder. He is working hard on everything that he can control and by the sound of it, it is just discipline and execution. Not landing on the moon type of stuff. BS is not accepted in his office. That is actually exactly what is needed to run a successful income trust which PWT should have been instead of the non-focused mess that it had become. Cardboard Link to comment Share on other sites More sharing options...
phil_Buffett Posted January 24, 2014 Share Posted January 24, 2014 "cardboard are you still on board at pennwest?" Sure, but who am I? I was the idiot who bought an initial position in the $11 range and then doubled down at what looked like the low before the last few days... All the signals seem to point in the right direction except that the market for asset sales remains very weak. The price obtained was very low for these assets. I understand Roberts rationale based on his presentation but, a low price remains a low price. This combined with a reduction of another 4,000 boe/day on the already shocking low production forecast for 2014 really spooked the market. The story has not changed much at all here. The price of entry is only better and with it your eventual rate of return. I bought too early, paid too much from what it is now, but I still think that in 2 or 3 years that the overall return will be quite good. And that is if the guys at CNQ, Suncor and other large firms don't take it out sooner. There is still after all high demand for light products out in Alberta due to the large oil sands production growth (pipeline shipping and refining). And when you look at the CDN$ price lately and their assumption of $89 CDN per barrel of light oil, then you start understanding that this company is pretty cheap now. Regarding their cash flow long term forecast, I would assume that they will hit them close. You still can't be right on since too many prices can vary. However, as long as they target best in class costs and with the assets that they have, it should look fine. This Roberts guy is a chemical/process guy. Not a mine finder. He is working hard on everything that he can control and by the sound of it, it is just discipline and execution. Not landing on the moon type of stuff. BS is not accepted in his office. That is actually exactly what is needed to run a successful income trust which PWT should have been instead of the non-focused mess that it had become. Cardboard thanks cardboard very much for your answer. i bought a first stake yesterday at $7,5 and today more Link to comment Share on other sites More sharing options...
biaggio Posted January 24, 2014 Share Posted January 24, 2014 "Sure, but who am I? I was the idiot who bought an initial position in the $11 range and then doubled down at what looked like the low before the last few days…" Cardboard Don t be too hard on yourself Even the best stock pickers are only right 2 of 3 times. In the short run outcomes are mostly luck, good or bad. Hopefully you have helped some of the rest of us (and you 2) make a decent return over the next 3 years. I think you gave us decent info in your posts--thanks Link to comment Share on other sites More sharing options...
alertmeipp Posted January 24, 2014 Share Posted January 24, 2014 11 will be a good price if this turns around. Link to comment Share on other sites More sharing options...
biaggio Posted January 24, 2014 Share Posted January 24, 2014 If they are not generating distributable cash flow after their capex, and opex, then the value of the business is zero. The land is worthless if you cannot generate distributable cash. Therefore the PPE, and the company are worth zero. Subject to someone else coming along who thinks they can improve the situation, of course. My simplified take on the situation. Dave Roberts seems to grasp this. Rick George certainly does and he has spent 8 million on stock at higher prices than today. This makes sense to me. I feel like there is a good chance that George + Roberts can turn this around. I would like to see Roberts step in and buy some stock after latest sell off Like Cardboard or Alert said the new management is looking to do straight forward engineering not something high risk/highly technical. The assets are decent from what I understand, it was management that was the issue - hopefully these new guys will make it happen. Alert, I hope Cardboard triples his money from 11. Not unrealistic I hope. Link to comment Share on other sites More sharing options...
longlake95 Posted February 21, 2014 Share Posted February 21, 2014 Nice to see China Investment Corp raise their stake to just under 10% Also, that Fairfax started a small position in PWT. We've got good company, while we wait. LOL. LL Link to comment Share on other sites More sharing options...
Guest 50centdollars Posted February 21, 2014 Share Posted February 21, 2014 Nice to see China Investment Corp raise their stake to just under 10% Also, that Fairfax started a small position in PWT. We've got good company, while we wait. LOL. LL How do you know that FFH bought into PWT? Link to comment Share on other sites More sharing options...
gfp Posted February 21, 2014 Share Posted February 21, 2014 Nice to see China Investment Corp raise their stake to just under 10% Also, that Fairfax started a small position in PWT. We've got good company, while we wait. LOL. LL How do you know that FFH bought into PWT? http://www.dataroma.com/m/holdings.php?m=FFH Link to comment Share on other sites More sharing options...
Guest 50centdollars Posted February 21, 2014 Share Posted February 21, 2014 Nice to see China Investment Corp raise their stake to just under 10% Also, that Fairfax started a small position in PWT. We've got good company, while we wait. LOL. LL How do you know that FFH bought into PWT? http://www.dataroma.com/m/holdings.php?m=FFH thanks Link to comment Share on other sites More sharing options...
Myth465 Posted May 22, 2014 Share Posted May 22, 2014 Very good info regarding asset sales and valuation. http://www.stockhouse.com/companies/bullboard/t.pwt/penn-west-petroleum-ltd?postid=22586537 Link to comment Share on other sites More sharing options...
longlake95 Posted June 4, 2014 Share Posted June 4, 2014 Some news on PWT Another thing for the new team to deal with... http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/penn-west-board-faces-allegations-of-stock-option-manipulation/article18978771/ http://online.barrons.com/news/articles/SB50001424053111904651304579602611121996496?mod=yahoobarrons&ru=yahoo LL D: very long Link to comment Share on other sites More sharing options...
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