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Energy Summary for Oct. 8, 2014

2014-10-08 20:23 ET - Market Summary

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by Stockwatch Business Reporter

West Texas Intermediate crude for November delivery lost $1.54 to $87.31 on the New York Merc, while Brent for November lost 73 cents to $91.38 (all figures in this para U.S.). Western Canadian Select traded at a discount of $12.80 to WTI ($74.51), up from a discount of $13. Natural gas for November lost 10.2 cents to $3.85. The TSX energy index lost 2.49 points to close at 272.79.

Penn West Petroleum Ltd. (PWT) dipped below $6 for the first time since 1999 (adjusted for a 3-for-1 stock split in 2005) before settling at $6.21, down 15 cents, on 3.84 million shares. Penn West has fallen from nearly $12 this time last year. The first big blow came in November, 2013, when the company announced sweeping changes that included a lower-than-expected budget for 2014 and a goal of selling $1.5-billion to $2-billion of assets before 2015. The move sent the stock below $10. It was unpopular because Penn West's dividend yield (then around 5 per cent) was relatively in line with its peers, so if the company was not going to increase production through drilling (and in fact was going to decrease it through asset sales), its appeal was diminished. The plan did not work as expected. The dividend yield is now 9 per cent, following a summer of problems centred on an internal accounting investigation. The results of this investigation prompted Penn West to restate more than two years of financials, slashing reported cash flow and raising reported operating costs, and also led to a barrage of proposed class actions. As well, Penn West has managed to sell only $750-million of assets, and is quickly running out of time to meet its $1.5-billion to $2-billion target before the end of the year. Two of the assets it was particularly keen to sell have not attracted buyers. These are its 50-per-cent interest in the Cordova gas project of northeastern British Columbia, held with Japan's Mitsubishi, and its 55-per-cent share of the Peace River thermal oil sands project, a joint venture with China Investment Corp. Neither contributes significant production. Last spring, Penn West started actively marketing its assets in the Alberta Duvernay. It has about 100,000 net acres and spudded its first well in July, expecting to begin completion at the beginning of this month and to bring the well on production in December. It may be pleased with what it seeing so far because it licensed a second Duvernay well on Oct. 1. Most of its activity is still going toward its Cardium, Viking and Slave Point assets, where Penn West plans to will spend 95 per cent of its development capital from 2014 to 2018.

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