Penn West Energy Cuts Distribution

Read the official press release here.

I will dig deeper into the numbers later but my first reaction is somewhat muted. I had been anticipating a distribution cut when oil was much higher (see previous posts here) so obviously, yesterday’s announced 33% cut was inevitable, given the drastic drop in energy prices.

Penn West is also cutting capex, with an eye toward backloading it at the end of the year to take advantage of falling service costs.  Also, the recent bout of US$ strength is probably a net benefit as the oil price is quoted in US$ but expenses are paid in C$.

All in all, these moves are reasonable and somewhat expected. The stock did not react much to the news. Despite the benign reaction, I harbor concerns — if PWE had trouble keeping up with oil over $100, what is its outlook with oil around $35?

The management earnings call in mid-February will be essential to get a sense on how the company plans to react to this horrific market environment.

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