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Energy Summary for Nov. 28, 2014

2014-11-28 20:27 ET - Market Summary

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by Stockwatch Business Reporter

U.S. markets were closed for half of the day. West Texas Intermediate crude for January delivery lost $2.90 to $66.15 on the New York Merc, while Brent for January lost $2.35 to $70.15 (all figures in this para U.S.). Western Canadian Select traded at a discount of $17.40 to WTI ($48.75), unchanged. Natural gas for January lost 15.2 cents to $4.08. The TSX energy index lost 5.32 points to close at 230.22.

Several oil stocks continued to sink in the wake of yesterday's OPEC decision against a production cut. Penn West Petroleum Ltd. (PWT), one of yesterday's biggest fallers by percentage, lost another 14 cents to $4.07 on 10.5 million shares. Eight years ago it traded above $47. One and a half years ago, when it was above $10, it promised a turnaround and overhauled its senior management, and one year ago, it set a goal to sell $1.5-billion to $2-billion of non-core assets before 2015. This deadline was pushed back to early 2016 this month, as Penn West has sold about $1-billion so far, including a $355-million sale that is scheduled to close in early December. Proceeds from these sales have helped reduce net debt to around $2.2-billion. In 2015, Penn West plans to continue to "set the stage for substantial growth" in 2016 and beyond, which seems to be its way of telling investors to keep their expectations in check for now. The company says its stage-setting requires it to spend more money than it will make in 2015. It has set a capital budget of $840-million, mainly directed to its Cardium, Viking and Slave Point light oil plays, and will also pay out about $225-million through its 14-cent quarterly dividend, which it does not want to cut despite the generous yield of 13.7 per cent. Other costs that do not fit into the capital or dividend categories (such as environmental spending) will require more tens of millions of dollars. By comparison, funds flow in 2015 is expected to be $875-million to $925-million. All this assumes a WTI average of $87.50 (U.S.), well above today's prices, which is likely why investors are getting antsy (even though Penn West says it may adjust its plans if oil stays below $75 (Canadian) through the first half of 2015). Chief financial officer David Dyck still seems to like the plan. Yesterday after the OPEC announcement, he bought 11,650 shares at $4.29, bringing his holdings to 86,150 of Penn West's 497 million shares.

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