- Agreement includes all of Penn West’s Saskatchewan assets
- Deal seen helping Penn West comply with debt covenants
Teine Energy Ltd., the energy company backed by Canada Pension Plan Investment Board, has agreed to buy oil-producing properties from Penn West Petroleum Ltd. for C$975 million ($763 million) in cash.
The deal involves all of Penn West’s properties in the Canadian province of Saskatchewan, including its Dodsland Viking light-oil assets in the east and the medium and heavy crude assets in the west, Calgary-based Penn West said in a statement late on Friday. The agreement helps highly-leveraged Penn West stay in compliance with debt covenants it had forecast potentially breaching in the second quarter, which ends June 30. Penn West now expects to remain within those covenants through 2016, it said in Friday’s statement.
Penn West is fighting to stay afloat as the crude market rout approaches two years. The company, while selling other assets to reduce its debt, had long sought to avoid parting with the Viking properties that were important to its strategy. Analysts in recent weeks had forecast that Penn West would have to resort to selling the Viking properties, and Bloomberg reported last week that the company had hired hired Royal Bank of Canada to advise it on the sale of the assets.
“Saskatchewan is a coveted asset amongst many of our competitors and with this transaction we have capitalized on the demand for high-quality oil assets of scale,” David Dyck, chief financial officer of Penn West, said in the statement. “This is a pivotal transaction for the company.”
The sale of the Saskatchewan assets is expected to close in the second quarter, according to the statement. Penn West has also agreed to sell Alberta properties for proceeds of about C$140 million, the company said, without identifying any buyers. Penn West has agreed to sell assets fetching a total of C$1.3 billion in cash in 2016, the company said.
Penn West’s share price has fallen 90 percent since U.S. crude’s price peak in mid-2014, to close at C$1.16 in Toronto on Friday. The company had total debt of C$1.86 billion at the end of the first quarter, according to data compiled by Bloomberg.
(Penn West will host a conference call to discuss the agreements at 12 p.m. New York time on Monday June 13.)