Penn West Seen Selling Most-Prized Oil Assets as Debt Weighs

  • Producer may need to sell 'jewel' Viking fields, Dundee says
  • Company exceeds asset sales target and says trying for more

Penn West Petroleum Ltd. is trying to avoid parting with its best assets as the oil market crash brings its debt into focus. The company appears to be running out of other options.

Penn West has exceeded a target set with its debt holders of selling C$650 million ($489 million) of assets outside its areas of focus, with a deal announced Thursday to dispose of its 9.5 percent stake in the Weyburn oil field in southeast Saskatchewan for C$205 million. That brings the total sold this year to C$810 million, not enough to keep debt in check, according to Desjardins Capital Markets and Dundee Capital Markets Inc. estimates.

“Frankly, I think they have to sell one of their jewels if they want to survive, the jewel being the Viking, most likely,” Brian Kristjansen, an analyst at Dundee in Calgary, said in a phone interview. The Viking tight oil asset in Saskatchewan produces light crude, generates high returns and is probably worth at least C$800 million, he said, which would bring Penn West’s total asset sales to at least C$1.61 billion.

“The resulting company won’t be as attractive because it’s their highest net-back asset.”

An oil market slump that began last year is keeping prices below $50 a barrel for the U.S. benchmark, curbing cash flow for producers. Calgary-based Penn West will probably violate a covenant on its debt in the first three months of 2016 if it doesn’t sell a key property, Kristjansen said. 

The producer’s debt remains “a significant headwind,” at more than six times its cash flow, according to a note by Kristopher Zack at Desjardins in Calgary.

In a statement Thursday announcing the Weyburn sale, Penn West said it would stick to its strategy of selling “non-core” assets to further lower debt and will continue to focus on primary operations. A company spokesman declined to comment further.

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