Exploration & Production | Capital Markets | Capital Expenditure | Drilling Program

Penn West Increasing Light Oil Budget in 2015

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   |    Monday,November 17,2014

Penn West Petroleum has announced the details of its 2015 capital budget and updated long-term plan.

Dave Roberts, President and CEO stated: "Having just passed the first anniversary of the announcement of our Long-Term Plan, I am pleased to report that we have made significant progress and delivered on many of our targets, which gives me confidence that Penn West has turned the corner. Notable achievements of the Company over the past 12 months include:

• Over $1 billion in asset sales will have been completed after taking into account the additional proceeds of approximately $355 million expected upon the December, 2014 close of the recently announced non-core asset sale;
• Cash costs have come down approximately 23 percent in the last 12 months;
• Drilling and completions costs that were reduced by 30 percent on average per well at the beginning of the Long-Term Plan cycle have been sustained with increasing activity levels;
• Operational improvements, discipline and focused investment have resulted in more reliable production performance to date in 2014 - the Company now expects average volumes for 2014 to be above the mid-point of our guidance of 101,000 - 106,000 boe per day;

2014 funds flow is expected to result in a sustainability ratio of approximately 100 percent as compared to initial expectations of a sustainability ratio of 118 percent for 2014.
The Long-Term Plan was prepared to position the Company for success in a low commodity price environment, and the Company's strategic direction remains intact".

Long Term Plan Update

Penn West's Long-Term Plan remains centered on reliability and deliverability of operational performance, key components of which are effective cost control and development, including integrated waterflood support concentrated in our large, light oil resource plays. The pricing assumptions upon which the Long-Term Plan is based remain conservative, in our view, and are unchanged from last year's assumptions of C$86.50 per barrel of Canadian light sweet, C$3.69 per mcf AECO, and a C$/US$ foreign exchange rate of $1.04.

Rigorous sensitivity analysis conducted by the Company suggests that the Long-Term Plan is resilient to commodity price fluctuations that are common to the oil and gas industry. However, actions that the Company might take in response to any further commodity price weakness have also been specifically considered. Penn West controls over 90 percent of its capital investment allocation decisions, providing sufficient flexibility to manage the business appropriately. As previously stated when the Company released its third quarter results on November 5, 2014, what will guide the Company's investment decisions more than absolute commodity prices is the duration of commodity price weakness.

The updated Long-Term Plan targets compound annual growth rates (CAGR) between 2015 and 2019 of approximately 13 percent for oil in terms of average daily production volumes, and over eight percent in terms of our total boe average daily production volumes, which is expected to drive a funds flow CAGR between 2015 and 2019 of over 20 percent. These targets are based on what the Company believes to be conservative commodity pricing assumptions.

2015 Capital Budget and Production Guidance

The Board has approved a 2015 capital budget of approximately $840 million. The focus of the 2015 capital budget is to continue to improve capital efficiencies, recoveries and profitability. Similar to capital allocations in 2014, development spending and related operations will be balanced across quarters to reduce variability in production volumes, improve efficiencies and maximize returns in deployed capital.

Total budgeted development capital is approximately $750 million, and compares with approximately $720 million anticipated to be invested in 2014, with the remainder allocated to base infrastructure improvement and corporate level expenditures.

Approximately $585 million of the budgeted development capital (approximately 78 percent) is allocated to light-oil development in the Company's three core areas,

Including:

• approximately $370 million (approximately 64 percent) to the Cardium play, 
• approximately $125 million (approximately 21 percent) to the Viking play and 
• approximately $90 million (approximately 15 percent) to the Slave Point play. 
• Light oil capital allocations continue to include integrated investment to advance waterflood programs. 

The Company expects to spud approximately 225 (212 net) wells in 2015, over 90 percent of which will be drilled in the three core light oil areas as shown in Table 1 below.



2015 forecast average production is expected to be between 95,000 and 105,000 boe per day, weighted approximately 69 percent toward oil and liquids. The 69 percent weighting toward oil and liquids represents an approximate six percent increase over the oil and liquids weighting expected in our average daily production volumes in 2014.