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UPDATE-Penn West to sell Mitsue assets; target price raised at Dundee

Penn West had long-term debt of $2.21bn as of June 30.


Penn West Petroleum (TSE:PWT, NYSE:PWE) climbed on Tuesday after the Canadian senior oil producer said it would sell its assets in Mitsue in Central Alberta for $192.5mln in cash to cut debt.

Shares rose as much as 7.6% to C$0.71 at 11:37 am in Toronto. The stock had lost three-fourths of its market value this year through Monday.

Upon the closing of the Mitsue deal expected at the end of October, Penn West will have raised $605mln this year by divesting its non-core assets, the Calgary, Alberta-based company said in a statement on Tuesday.

Penn West had long-term debt $2.21bn as of June 30.

“Despite the current weakness in commodity prices, we continue to demonstrate the ability to complete non-core asset dispositions at attractive deal metrics,” chief financial officer David Dyck was quoted in the statement as saying. 

Penn West cut its budget and eliminated jobs this month and said it would only spend cash it earned from operations. The company had also lowered its 2015 output forecast to 86,000 to 90,000 barrels of oil equivalent per day from 90,000 to 100,000 boepd.

Following the announcement, Dundee Capital raised its target price on the stock to $1.10 from $1.00, and repeated a “neutral” recommendation.

Dundee remained with its speculative risk rating “as additional sales above our carried value are required to see the company stay onside of its debt covenants,” analyst Brian Kristjansen said in an investor note.

Dundee said the sale has reduced its forecast production for the fourth quarter and the upcoming fiscal year, though the impact on cash flow is muted by the net improvement in per unit operating costs, despite the lower production. 

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