PENN WEST ENERGY TRUST (TSX - PWT.UN; NYSE - PWE) is pleased to announce record net income and strong funds flow for the third quarter ended September 30, 2008.
Financial
- Funds flow(1) of $662 million in the third quarter of 2008 was 91 percent higher than the $346 million realized in the third quarter of 2007. On a per unit-basis(1) basic funds flow increased to $1.73 per unit in the third quarter of 2008, an increase of 20 percent from $1.44 per unit in the third quarter of 2007.
- Record net income of $1,062 million ($2.78 per unit-basic) in the third quarter of 2008 compared to net income of $138 million ($0.57 per unit-basic) in the third quarter of 2007. The significant increase in net income in the third quarter was primarily due to gains on risk management activities. Penn West hedges a portion of its forward production to protect its balance sheet as well as a portion of its planned distribution and capital programs.
- The netback(1) of $43.33 per boe(2) in the third quarter of 2008 was 33 percent higher than the third quarter of 2007.
Operations
- Production averaged 190,177 boe per day in the third quarter of 2008 compared to 125,345 boe per day reported in the third quarter of 2007.
- Reported crude oil and NGL production averaged 106,898 barrels per day and natural gas production averaged 500 mmcf per day in the third quarter of 2008.
- Capital expenditures were $232 million in the third quarter of 2008 including $6 million of net asset dispositions. A total of 98 net wells were drilled with a success rate of 98 percent.
Business Environment
- In the third quarter of 2008, WTI NYMEX ("WTI") crude oil prices reached a new all time high closing above US$145.00 per barrel in July. Subsequent to July, turmoil in the credit markets led to concerns that world economic growth will slow and reduce global energy demand, in turn leading to a fall in WTI crude oil to US$65.00 in October 2008. WTI crude oil averaged US$118.13 per barrel for the third quarter compared to US$75.33 in the third quarter of 2007. For the first nine months of 2008, WTI crude oil has averaged US$113.44 per barrel compared to US$66.26 per barrel in the first nine months of last year.
- Natural gas prices have trended similarly to crude oil prices to date in 2008, increasing in the first half of the year before peaking in July. Concerns about a slowing North American economy and projected increases in natural gas production from the continental U.S. put pressure on natural gas prices subsequent to July. The AECO Monthly Index price for natural gas averaged $8.78 per GJ in the third quarter compared to $5.32 per GJ in the third quarter of 2007. For the first nine months of 2008, the AECO Monthly Index has averaged $8.14 per GJ compared to $6.46 per GJ in the first nine months of 2007.
(1) The terms "funds flow", "funds flow per unit-basic" and "netbacks" are non-GAAP measures. Please refer to the "Non-GAAP Measures Advisory" and "Calculation of Funds Flow" sections below.
(2) Please refer to the "Oil and Gas Information Advisory" section below for information regarding the term "boe".
Financial Markets
- Penn West's Board of Directors and Management have been monitoring the unusual developments in the credit markets since mid-2007 and have taken several steps to defensively position Penn West. In January 2008, we placed a 3-year $4.0 billion credit facility. We then completed two transactions to add to our long-term private notes which now total approximately $1.2 billion. At this time, we have approximately $1.5 billion of unutilized credit capacity. Our risk management policies have served to minimize our credit losses from troubled counterparties. We have earmarked funds flow in excess of distributions and capital expenditures to debt reduction. We remain committed to modifying business strategies as required to ensure Penn West's financial position remains sound.
- We actively hedged oil and natural gas prices for 2009 and currently have WTI collars on 30,000 barrels per day of 2009 oil production at US$80.00 per barrel by US$110.21 per barrel and 101,000 GJ per day of 2009 natural gas production under collars at $7.88 per GJ by $11.27 per GJ. In October 2008, we monetized a portion of our crude oil financial contracts which resulted in cash proceeds of approximately $123 million. The proceeds were used to repay advances on our syndicated credit facility. In conjunction with adjusting the floor on our 2009 WTI collars, we also entered foreign exchange contracts to swap $180 million of U.S. dollar revenue for 2009 to Canadian dollars at an average rate of one U.S. dollar equals 1.27 Canadian dollars to fix the Canadian dollar floor price of the collars. In November 2008, as part of our debt management strategy, we entered into interest rate swaps that fix the interest rate at 2.27 percent on $250 million of floating interest rate debt for two years.
Distributions
- Penn West's Board of Directors recently resolved to keep the Trust's distribution level at $0.34 per unit per month, for the months of November, December and January subject to maintenance of current forecasts of commodity prices, production levels and planned capital expenditures.
Financing
- On July 31, 2008, the Company issued (pnds stlg) 57 million of senior unsecured notes, through a private placement in the United Kingdom, maturing in 2018 and bearing interest of 7.78 percent. In conjunction with the issue of the notes, the Company entered into contracts to fix the principal and interest of the placement at approximately $114 million bearing interest in Canadian dollars at 6.95 percent. The Company used the proceeds to repay advances on its bank facilities. -- www.cnxmarketlink.com
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