Attention Business/Financial Editors:
Penn West announces its results for the first quarter ended March 31, 2008
CALGARY, May 6 /CNW/ - (TSX - PWT.UN; NYSE - PWE) Penn West Energy Trust
("Penn West") is pleased to announce its results for the first quarter ended
March 31, 2008 with the Canetic and Vault operations included from mid-January
2008.
Canetic and Vault Closings
- Production for the first quarter of 2008 was approximately
201,800 boe(1) per day including the Canetic Resources Trust
("Canetic") and Vault Energy Trust ("Vault") assets from January 1,
2008. Production consisted of approximately 114,177 barrels per day
of crude oil and NGL and 526 mmcf per day of natural gas.
- Penn West Energy Trust closed its acquisitions of Canetic on
January 11, 2008 and Vault on January 10, 2008. The reported results
of operations and funds flow(2) include the Canetic and Vault assets
from these closing dates forward.
Operations
- Reported production averaged 192,291 boe per day in the first quarter
of 2008 compared to 128,024 boe per day in the fourth quarter of
2007.
- Reported crude oil and NGL production averaged 109,016 barrels per
day and natural gas production averaged approximately 500 mmcf per
day in the first quarter of 2008.
- Capital expenditures excluding corporate acquisitions totalled
$278 million including $4 million of net asset dispositions and we
drilled 115 net wells in the first quarter with a success rate of
96 percent.
Financial
- Funds flow of $632 million ($1.76 per unit-basic (2)) in the
first quarter of 2008 was 81 percent higher than funds flow of
$349 million ($1.44 per unit-basic) realized in the fourth quarter of
2007. With the Canetic and Vault assets included from January 1, 2008
pro forma funds flow for the first quarter of 2008 was $653 million
($1.74 per unit-basic).
- Net income in the first quarter of 2008 was $78 million ($0.22 per
unit-basic) compared to net income of $127 million ($0.53 per unit-
basic) in the fourth quarter of 2007, which included $106 million of
one-time future income tax recoveries related to tax rate reductions.
- Netbacks(2) of $40.57 per barrel of oil equivalent were 37 percent
higher than the first quarter of 2007.
(1) Please see "Oil and Gas Information Advisory" below for information
regarding the term "boe".
(2) The terms "funds flow", "funds flow per unit-basic" and "netbacks"
are non-GAAP measures. Please see "Non-GAAP Measures Advisory"
and "Calculation of Funds Flow" below.
Distributions
- Penn West's Board of Directors recently resolved to keep the Trust's
distribution level at $0.34 per unit, per month, for the months of
May, June and July based on current forecasts of commodity prices,
production levels and planned capital expenditures.
Commodity Environment
- The price of crude oil continues to set record highs. Demand growth
in Asia and several OPEC countries continues at historically high
levels while supply growth remains behind the pace of demand growth.
The net result is greater reliance on OPEC's unutilized capacity,
which is expected to become further strained as the year progresses.
- Heavy oil differentials have narrowed substantially in the first
quarter of 2008 compared to fourth quarter 2007, but remain wider
than the first quarter of 2007.
- Natural gas prices began to rebound in the first quarter of 2008. The
past winter started with the largest North American natural gas
inventory levels in history. The second half of winter was colder
than recent years resulting in a rapid erosion of inventory levels.
Also contributing to the inventory decrease was a year-over-year
reduction in liquefied natural gas ("LNG") imports as cold weather
and unscheduled downtime at several nuclear power plants overseas
drew more LNG than expected away from North American markets.
Alberta Royalty Update
- The new royalty framework continues to be under review with the
objective of avoiding "unintended consequences" of the plan. In April
2008, the Government of Alberta announced a new program supporting
producers in the development of deep oil and gas reserves that would
have been uneconomic under the new framework. These incentives apply
to oil exploration wells deeper than 2,000 metres and gas exploration
and development wells deeper than 2,500 metres.
Financing
- On April 30, 2008, the Company priced the issuance of US$480 million
and CAD$30 million of proposed senior unsecured notes on a private
placement basis primarily in the United States maturing in eight to
12 years, and bearing interest at 6.12 percent to 6.40 percent with
an average rate of approximately 6.25 percent. The note issuance is
expected to close on or about May 29, 2008 and the Company expects to
apply the proceeds to the repayment of bank debt.
HIGHLIGHTS
Three months ended March 31
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2008 2007 % change
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Financial
(millions, except per unit amounts)
Gross revenues(1) $ 1,136 $ 582 95
Funds flow 632 311 103
Basic per unit 1.76 1.31 34
Diluted per unit 1.75 1.30 35
Net income 78 96 (19)
Basic per unit 0.22 0.41 (46)
Diluted per unit 0.22 0.40 (45)
Total expenditures, net 278 216 29
Long-term debt at period-end(2) 3,639 1,402 160
Distributions paid(3) $ 337 $ 242 39
Operations
Daily production
Natural gas (mmcf/d) 500 340 47
Light oil and NGL (bbls/d) 81,678 49,106 66
Heavy oil (bbls/d) 27,338 22,610 21
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Total production (boe/d) 192,291 128,447 50
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Average sales price
Natural gas (per mcf) $ 7.98 $ 7.59 5
Light oil and NGL (per bbl) 88.77 59.49 49
Heavy oil (per bbl) 66.64 41.03 62
Netback per boe
Sales price $ 68.35 $ 50.08 36
Risk management (3.41) 0.29 (100)
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Net sales price 64.94 50.37 29
Royalties 12.25 9.63 27
Operating expenses 11.64 10.70 9
Transportation 0.48 0.53 (9)
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Netback $ 40.57 $ 29.51 37
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(1) Gross revenues include realized gains and losses on commodity
contracts.
(2) Excluding convertible debentures assumed on the Canetic and Vault
acquisitions.
(3) Includes distributions paid prior to those reinvested in trust units
under the distribution reinvestment plan.
DRILLING PROGRAM
Three months ended March 31
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2008 2007
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Gross Net Gross Net
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Natural gas 81 42 49 21
Oil 78 46 53 37
Dry 4 4 4 3
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163 92 106 61
Stratigraphic and service 23 23 15 15
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Total 186 115 121 76
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Success rate(1) 96% 95%
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(1) Success rate is calculated excluding stratigraphic and service wells.
UNDEVELOPED LANDS
As at March 31
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2008 2007 % change
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Gross acres (000s) 4,804 3,996 20
Net acres (000s) 3,927 3,577 10
Average working interest 82% 90% (9)
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FARM-OUT ACTIVITY
Three months ended March 31
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2008 2007
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Wells drilled on farm-out lands(1) 33 90
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(1) Wells drilled on Penn West lands, including re-completions and re-
entries, by independent operators pursuant to farm-out agreements.
CORE AREA ACTIVITY
Undeveloped
Net wells land as at
drilled for March 31,
the three 2008
months ended (thousands
March 31, of net
Core Area 2008 acres)
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Gas 35 1,791
Light oil 27 1,097
Heavy oil 53 1,039
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115 3,927
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TRUST UNIT DATA
Three months ended March 31
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(millions of units) 2008 2007 % change
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Weighted average
Basic 359.5 237.4 51
Diluted 361.2 239.7 51
Outstanding as at March 31
Basic 374.9 238.0 58
Basic plus trust unit rights 399.9 252.7 58
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On January 11, 2008, Penn West issued approximately 124.3 million trust
units on the closing of the Canetic acquisition and approximately 5.6 million
units on the closing of the Vault acquisition on January 10, 2008.
Letter to our Unitholders
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The first quarter of 2008 was a time of great activity throughout Penn
West. Our asset base expanded considerably in mid-January as we closed the
acquisitions of Canetic Resources Trust ("Canetic") and Vault Energy Trust
("Vault"). While certainly not without challenges, we have been pleased with
the integration process to date and are comfortable that the successes seen
throughout the first quarter will continue. Operationally, Penn West executed
a $278 million capital development program during the first quarter and
drilled a total of 115 net wells at costs lower than budgeted.
Pro forma production for the quarter, with Canetic and Vault included
from January 1, 2008 averaged 201,800 barrels of oil equivalent ("boe") per
day, in-line with our expectations particularly given the cold weather
experienced throughout February. Average operating netbacks were robust at
$40.57 per boe compared to $29.51 per boe in the first quarter of 2007.
Netbacks from light oil and natural gas liquids reached $49.82 per boe, which
was an increase of 47 percent year-over-year. Much of this increase can be
attributed to recent record commodity prices, which have continued to rise
subsequent to quarter end. Funds flow, with Canetic and Vault included
post-close was $632 million ($1.76 per unit basic) in the first quarter of
2008, 103 percent higher than in the same quarter of 2007. Our distribution
payout ratio in the first quarter of 2008 was below our targeted 60 percent.
The forecasted 2008 capital development budget of $960 million includes
approximately $60 million for the Peace River Oil Sands, $65 million for CO2
and waterflood improvements, $170 million for optimization activities and
$50�million for environmental activities. Current guidance is for pro forma
production volumes to average between 195,000 - 205,000 boe per day for 2008.
Using assumed commodity prices of US$107.00 per bbl WTI oil, $8.50 per GJ at
AECO for natural gas and an average CAD/USD exchange rate of par for 2008,
Penn West's funds flow is expected to be $2.7 billion to $2.9 billion for this
year. Should commodity prices remain reasonably close to the current forward
strip prices, our payout ratio would remain below our targeted range. This
lower payout ratio(1) would afford us the opportunity to apply additional
funds to debt repayment, adding strength to our balance sheet(2).
In the first quarter of 2008, oil prices reached record highs in U.S.
dollar terms, and natural gas prices rallied. The Canadian dollar remained
relatively solid against the U.S. dollar while financial markets continue to
be volatile as longer-term bond yields remain at historically depressed
levels. Current commodity prices remain strong, and oil prices continue to
break record highs.
Greenhouse gas emissions are increasingly moving to the fore of the
political agenda both federally and provincially. This signals a significant
step forward in our growing enhanced oil recovery ("EOR") programs as both
governments and CO2 emitters seek a means through which they can reduce the
amount of greenhouse gases released each year. We are actively working with
all stakeholders to secure appropriate and adequate CO2 sources for our
growing EOR projects. Bill Andrew has been appointed to sit on the Alberta
Carbon Capture and Storage Development Council. This council will develop
Alberta's plan to move ahead with carbon capture and storage projects
throughout Alberta by the fall of 2008.
We will continue to focus on our potential, and follow a strategy that
facilitates future development of our extensive asset base. With our strong
track record in light oil, waterflood recovery and enhanced recovery, it
follows that we should look for similar light oil pools in other basins. As
well as offering opportunity to recapitalize and re-energize assets through
new ideas and technologies, we see these as structural options providing
improved portfolio and risk management, which are important for a producer of
our magnitude. Penn West exited the first quarter of 2008 with unprecedented
strength, including a suite of high-quality conventional and unconventional
projects with mid to long-term exploration, development and enhanced oil
recovery potential, industry-leading ownership of western Canada's largest
legacy light oil pools, and an enterprise value in excess of $15 billion. We
are committed to realizing the maximum value of Penn West for our unitholders.
There were several key additions to the management team at Penn West
during the first quarter. Of note was the addition of Murray Nunns as
President and Chief Operating Officer. Mr. Nunns has 29 years of growth
oriented oil and natural gas experience, and brings to Penn West a long
history of consistent success as an exploration and operational executive.
Subsequent to the end of the quarter, Ms. Hilary Foulkes joined the management
team as Senior Vice President, Acquisitions and Divestitures. Ms. Foulkes
arrives at Penn West having spent the last eight years with one of the most
prominent oil and gas asset clearing houses in North America. Ms. Foulkes is a
professional geologist with more than 20 years experience in the oil and gas
industry. Her wealth of experience and keen insight into deal flow both here
in Canada as well as the U.S. will position Penn West to better capitalize on
opportunities as we seek to rationalize our extensive portfolio of assets.
We continue to assess and apply new technology aimed at increasing
ultimate recovery rates to the largest portfolio of light oil properties in
the Western Canadian Sedimentary Basin. During the first quarter of 2008, we
drilled two vertical in-fill wells within the Pembina 'A' Lease pilot and
expect the Horizontal CO2 pilot construction at Pembina to be completed and
on-stream mid-second quarter of 2008. The CO2 pilot in South Swan Hills is
currently in the final stages of construction with an expected on-stream time
of early next quarter. Our pilot projects at Pembina and South Swan Hills
continue to enhance our long-term potential for enhanced light oil recovery
and sequestration of greenhouse gases using CO2 injection miscible flooding.
Subsequent to the end of the first quarter, we took actions to diversify
our capital structure. On April 30, 2008 we announced a proposed offering of
notes to be issued on a private placement basis, primarily in the United
States, with an aggregate principal amount of US$480 million of guaranteed
senior notes plus $30 million in Canadian dollar denominated notes maturing
from eight to 12 years. We will use the proceeds of the notes to repay a
portion of our outstanding bank debt. We are focused on continuing to maintain
a strong and diversified balance sheet.
On behalf of the board and staff of Penn West Energy Trust, we wish to
thank our unitholders for their continuing support of our initiatives to
unlock the value in our conventional assets and long-term projects. We would
also like to thank our staff for their commitment in building for the future
for continuing success.
On behalf of the Board of Directors,
(signed) "William E. Andrew" (signed) "Murray R. Nunns"
William E. Andrew Murray R. Nunns
Chief Executive Officer President and Chief Operating
and Director Officer
Calgary, Alberta
May 6, 2008
(1) The term "payout ratio" is a non-GAAP measure. Please see "Non-GAAP
Measures Advisory" below.
(2) For further guidance explanations see "Outlook" below.
Outlook
This outlook section is included to provide unitholders with information
as to management's expectations as at May 6, 2008 for production, funds flow
and net capital expenditures for 2008 and readers are cautioned that the
information may not be appropriate for any other purpose. This information
constitutes forward-looking information. Readers should note the assumptions,
risks and disclaimers under "Forward-Looking Statements".
Oil prices reached record levels during the first quarter of 2008 and
have strengthened further since March 31, 2008. The outlook for natural gas
prices has improved leading to significant increases in our 2008 forecast
prices for both commodities. We continue to expect the Canadian dollar will
remain strong compared to the U.S. dollar for the remainder of 2008. Including
the Canetic and Vault acquisitions, Penn West continues to forecast 2008
production of between 195,000 boe per day and 205,000 boe per day. Based on an
average forecast WTI oil price of US$107.00 per barrel, an average $8.50 per
GJ natural gas price at AECO and an average CAD/USD exchange rate of par for
2008, our funds flow forecast for 2008, as at May 6, 2008, is between $2.7
billion and $2.9 billion ($7.15 to $7.70 per unit-basic). Consistent with our
budget, we continue to estimate 2008 net capital expenditures of approximately
$960 million. In addition, other components of funds flow have been modestly
adjusted to reflect experience gained to date in 2008.
Our prior forecast, released on February 22, 2008, was based on a
commodity price forecast for 2008 of WTI oil price of US$80.00 per barrel, an
AECO natural gas price of $6.75 per GJ and a CAD/USD exchange rate of par. At
that time, based on those prices, we forecasted funds flow between $2.0
billion and $2.1 billion ($5.30 to $5.57 per unit-basic).
Non-GAAP Measures Advisory
The above information includes non-GAAP measures not defined under
generally accepted accounting principles ("GAAP"), including funds flow,
netback and payout ratio. Non-GAAP measures do not have any standardized
meaning prescribed by GAAP and are therefore unlikely to be comparable to
similar measures presented by other issuers. Funds flow is cash flow from
operating activities before changes in non-cash working capital and asset
retirement expenditures. Funds flow is used to assess the ability to fund
distributions and planned capital programs. Netback or netbacks is a
per-unit-of-production measure of operating margin used in capital allocation
decisions. Operating margin is calculated as revenue less royalties and
operating costs. Payout ratio represents distributions divided by funds flow
and is used to assess the adequacy of funds flow remaining to fund capital
programs.
Calculation of Funds Flow
Three months ended March 31
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(millions, except per unit amounts) 2008 2007
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Cash flow from operating activities $ 367 $ 296
Increase in non-cash working capital 251 5
Asset retirement expenditures 14 10
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Funds flow $ 632 $ 311
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Basic per unit $ 1.76 $ 1.31
Diluted per unit $ 1.75 $ 1.30
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Oil and Gas Information Advisory
Barrels of oil equivalent (boe) are based on six mcf of natural gas
equalling one barrel of oil (6:1). This could be misleading if used in
isolation as it is based on an energy equivalency conversion method primarily
applied at the burner tip and does not represent a value equivalency at the
wellhead.
Forward-Looking Statements
Certain statements contained in this document constitute forward-looking
statements or information (collectively "forward-looking statements") within
the meaning of the "safe harbour" provisions of applicable securities
legislation. Forward-looking statements are typically identified by words such
as "anticipate", "continue", "estimate", "expect", "forecast", "may", "will",
"project", "could", "plan", "intend", "should", "believe", "outlook",
"potential", "target" and similar words suggesting future events or future
performance. In addition, statements relating to "reserves" or "resources" are
deemed to be forward-looking statements as they involve the implied
assessment, based on certain estimates and assumptions, that the reserves and
resources described exist in the quantities predicted or estimated and can be
profitably produced in the future. In particular, this document contains
forward-looking statements pertaining to, without limitation, the following:
our intention to issue additional senior unsecured notes, including the
principal amount thereof, the material terms thereof, the timing thereof and
the anticipated use of proceeds derived therefrom; the nature and quality of
our assets and our ability to successfully develop those assets; the long-term
exploration, development and enhanced oil recovery potential of our
conventional and unconventional projects; the possibility of expanding our
asset base beyond the western Canadian sedimentary basin and the benefits to
be derived from such an expansion; our intention to rationalize certain
assets; our ability to successfully apply new technology to increase recovery
rates on our light oil properties and sequester greenhouse gases in the
process; our business strategies and plans, including the timing for putting
certain carbon dioxide pilot projects on stream; future distribution levels;
the information set forth under the heading "Outlook" and elsewhere herein
regarding management's current expectations as to commodity prices,
U.S./Canadian dollar exchange rates, production volumes, funds flow and net
capital expenditures for 2008, including the intended allocation of capital
expenditures; our anticipated payout ratio for 2008 and how we will apply
excess funds flow that is not distributed to unitholders; our ability to
replicate the success we experienced during the first quarter; our ability to
secure carbon dioxide sources for our enhanced oil recovery projects.
With respect to forward-looking statements contained in this document, we
have made assumptions regarding, among other things: that we will close our
proposed issuance of senior unsecured notes on substantially the same terms
and within substantially the same time frame as disclosed herein, and that we
will use the proceeds therefrom in the manner disclosed herein; future oil and
natural gas prices and differentials between light, medium and heavy oil
prices; future capital expenditure levels; future oil and natural gas
production levels; future exchange rates; the amount of future cash
distributions that we intend to pay; the cost of expanding our property
holdings; our ability to obtain equipment in a timely manner to carry out
development activities; our ability to market our oil and natural gas
successfully to current and new customers; the impact of increasing
competition; our ability to obtain financing on acceptable terms; and our
ability to maintain existing production levels and add production and reserves
through our development and exploitation activities.
Although Penn West believes that the expectations reflected in the
forward-looking statements contained in this document, and the assumptions on
which such forward-looking statements are made, are reasonable, there can be
no assurance that such expectations will prove to be correct. Readers are
cautioned not to place undue reliance on forward-looking statements included
in this document, as there can be no assurance that the plans, intentions or
expectations upon which the forward-looking statements are based will occur.
By their nature, forward-looking statements involve numerous assumptions,
known and unknown risks and uncertainties that contribute to the possibility
that the predictions, forecasts, projections and other forward-looking
statements will not occur, which may cause Penn West's actual performance and
financial results in future periods to differ materially from any estimates or
projections of future performance or results expressed or implied by such
forward-looking statements. These risks and uncertainties include, among other
things: a delay in closing or the failure to close our proposed private
placement of senior unsecured notes, or the issuance of such notes on less
favourable terms than contemplated herein; volatility in market prices for oil
and natural gas; the impact of weather conditions on seasonal demand and
ability to execute capital programs; risks inherent in oil and natural gas
operations; uncertainties associated with estimating reserves and resources;
competition for, among other things, capital, acquisitions of reserves,
resources, undeveloped lands and skilled personnel; incorrect assessments of
the value of acquisitions; geological, technical, drilling and processing
problems; general economic conditions in Canada, the U.S. and globally;
industry conditions, including fluctuations in the price of oil and natural
gas; royalties payable in respect of our oil and natural gas production;
changes in government regulation of the oil and natural gas industry,
including environmental regulation; fluctuations in foreign exchange or
interest rates; unanticipated operating events that can reduce production or
cause production to be shut-in or delayed; failure to obtain industry partner
and other third-party consents and approvals when required; stock market
volatility and market valuations; OPEC's ability to control production and
balance global supply and demand of crude oil at desired price levels;
political uncertainty, including the risks of hostilities, in the petroleum
producing regions of the world; the need to obtain required approvals from
regulatory authorities from time to time; failure to realize the anticipated
benefits of acquisitions, including the acquisition of Vault Energy Trust and
Canetic Resources Trust; changes in tax laws; changes in the Alberta royalty
framework; uncertainty of obtaining required approvals for acquisitions and
mergers; and the other factors described in Penn West's public filings
(including our Annual Information Form) available in Canada at www.sedar.com
and in the United States at www.sec.gov. Readers are cautioned that this list
of risk factors should not be construed as exhaustive.
The forward-looking statements contained in this document speak only as
of the date of this document. Except as expressly required by applicable
securities laws, Penn West does not undertake any obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. The forward-looking statements
contained in this document are expressly qualified by this cautionary
statement.
Investor Information
Penn West trust units and debentures are listed on the Toronto Stock
Exchange under the symbols PWT.UN, PWT.DB.A, PWT.DB.B, PWT.DB.C, PWT.DB.D,
PWT.DB.E and PWT.DB.F and Penn West trust units are listed on the New York
Stock Exchange under the symbol PWE.
A conference call will be held to discuss Penn West's results at 9:00
a.m. Mountain Daylight Time, 11:00 a.m. Eastern Daylight Time, on May 7, 2008.
The North American conference call number is 866-250-4907 toll-free or
416-646-3095 in the Toronto area. A taped recording will be available until
May 14, 2008 by dialing 877-289-8525 or 416-640-1917 and entering pass code
21267696 followed by the pound sign. This call will be broadcast live on the
Internet and may be accessed directly on the Penn West website
www.pennwest.com or at the following URL:
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID"17380.
Penn West expects to file its Management's Discussion and Analysis and
unaudited interim financial statements on SEDAR and EDGAR shortly.
%SEDAR: 00022266E
%CIK: 0001334388
For further information: PENN WEST ENERGY TRUST, Suite 2200, 425 - First
Street S.W., Calgary, Alberta, T2P 3L8, Phone: (403) 777-2500, Fax: (403)
777-2699, Toll Free: 1-866-693-2707, Website: www.pennwest.com; Investor
Relations: Toll Free: 1-888-770-2633, E-mail:
investor_relations@pennwest.com; William Andrew, CEO, Phone: (403)
777-2502, E-mail: bill.andrew@pennwest.com; Jason Fleury, Manager, Investor
Relations, Phone: (403) 539-6343, E-mail: jason.fleury@pennwest.com
