Penn West Concerned Alberta Rule Change Will Hinder Asset Salesby
Talks to sell sites in the province will be affected, CEO says
Surprise rule change “off the mark," Roberts says in Calgary
The Calgary-based energy producer, which sold its entire position in Saskatchewan this month to reduce debt, is in talks at various stages to dispose of additional properties in Alberta and British Columbia, Chief Executive Office Dave Roberts told reporters on Thursday. He said discussions on the Alberta properties will be affected by the new ruling that requires asset buyers to have double the financial strength than previously mandated.
The Alberta Energy Regulator made the surprise rule change Monday evening to ensure purchasers have the capacity to cover well reclamation and other cleanup costs for the properties they’re buying. While it was meant to ensure compliance with environmental obligations and is temporary until the regulator comes up with a long-term framework, it has raised concerns among executives and dealmakers who say it will hinder transactions.
‘Off the Mark’
“The order they released this week is off the mark,” Roberts said after the company’s annual meeting of shareholders in Calgary. He said he’s optimistic consultation with the regulator will lead to another approach and that the interim measures will be replaced.
“As it stands now, obviously it is something that would have an impact on the things that we’re doing, so we’ll be very actively pursuing a dialogue with them,” he said.
After selling its oil-producing properties in Saskatchewan for C$975 million ($763 million) earlier this month, Penn West is looking to unload additional assets with output of 20,000 equivalent barrels of oil a day for C$100 million to C$200 million in Alberta and British Columbia by the end of 2016, Roberts said. He declined to say which assets were on the table.
The main change from the regulator is the doubling of the liability management ratio for asset buyers. The rating is a reflection of the extent to which a company’s assets cover its liabilities related to well cleanup. Purchasers are now required to have ratings of 2.0 or higher, up from a minimum of 1.0 previously. About 72 percent of 788 licensees evaluated in Alberta have ratios below the 2.0 threshold, according to the regulator’s online list.
“I don’t think it’s appropriate to isolate 70 percent of the companies that might be part of a transaction market,” Roberts said.