The dream team
Rick George and Allan Markin join Penn West's board. Will it be enough to help turn the company around?
When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at firstname.lastname@example.org
by Max Fawcett
Penn West (TSE:PWT) shares are trading up this morning, and it’s no wonder. The company announced today that it’s bringing in the oil patch’s equivalent of a dream team to help right the faltering company, adding former Suncor CEO Rick George as its new chairman of the board and former Canadian Natural Resources chairman Allan Markin as its new vice-chair.
But as the Globe and Mail’s Tim Kiladze notes in a piece today, the two heavyweights have a lot of heavy lifting ahead of them. “The company currently pays out $525-million annually to shareholders (before proceeds from the dividend reinvestment plan) and just last month analyst Greg Pardy at RBC Dominion Securities projected that the company would have to slash its payout to $366-million this year and to $318-million in 2014,” he writes. “The root problem: Penn West currently has $2.9-billion in long-term debt, according to its financial statements released last week. Mr. Pardy wrote that the debt burden needs to fall to between $1.5-billion and $2-billion in order to maintain the dividend.” That will almost surely mean more asset sales (the company already sold off $1.35 billion worth between June and December last year) and may include a cut to the dividend. But if you believe in the importance of strong management, you have to like Penn West’s chances of bouncing back.
Meanwhile, battered shares of Petrominerales (TSE:PMG) could see a bump of as much as 42 per cent if TD Securities analysts Jamie Somerville and Danny Yick are right. In a note they released last week, they argue that the company’s stake in the Ocensa pipeline, which links some of Colombia’s richest deposits with the Caribbean coast, is worth more than investors are giving the company credit for. Petrominerales paid $281 million in 2011 for a five per cent piece of the 800-kilometre pipeline, and Somerville and Yick say that stake “is underappreciated by the market, and we see significant potential for the company to announce a transaction that will demonstrate its value.” They moved the company from a hold to a buy on the recommendation.