President and CEO David Roberts of Penn West.TODD KOROL/Reuters
Penn West Petroleum Ltd. is seeking options to avoid defaulting on its loans as the company anticipates breaching debt covenants by the end of the second quarter.
The oil producer is in talks with lenders about possible amendments of covenants, selling assets and hedging positions, the Calgary-based company said Thursday in a statement on its 2015 fourth-quarter earnings results. Penn West reported a loss of $1.6-billion ($1.2-billion U.S.) for the period and cash flow per share of 1 cent, missing the 7-cent average of 11 analysts' estimates compiled by Bloomberg.
Debt is the "overriding concern" for the company, Kristopher Zack, an analyst at Desjardins Capital Markets in Calgary, said in a note. Penn West has a covenant that requires its senior debt to be no more than five times its earnings before interest, taxes, depreciation and amortization. Given the calculation is based on average earnings over the past 12 months, an oil price recovery can only provide so much relief, Zack said.
Penn West is among oil producers that have cut spending to the bone as it drives down costs and sells assets to contend with a crude market slump that has exceeded 20 months. Penn West in January adopted a capital budget that was 90 per cent less than last year's at about $50-million and includes no money for drilling.
The shares, which have no buy, 2 hold and 12 sell recommendations from analysts, fell 11 per cent to $1.41 at 11:06 a.m. in Toronto, the lowest intraday price since March 2.