It has been a near-perfect storm of poor choices and economic scenarios that have led Penn West Petroleum Ltd. (TSX:PWT)(NYSE:PWE) to where it is today. While a lot of it could have easily been prevented, the company was just starting to get things under control when the price of oil dropped. Had the price remained over US$100 a barrel, the company would not be in the situation it is in today.

While it is sometimes good to look back at what got us into this scenario, what should matter to investors is whether Penn West can survive. If you’ve held it for longer than a couple of months, there’s no doubt you’ve lost a lot of money on paper.

Fortunately, I think that Penn West might actually be able to turn everything around. It is going to take a long time, but at this point, you’ve already lost a chunk of change, so the risk might be worth the reward.

Now that it is under new management, the company is getting very good at streamlining operations and selling unneeded assets. For reasons many don’t know, previous management bought assets that really didn’t make sense to the core business.

Dale Roberts, the current CEO of Penn West, was able to make a deal with the lenders that would give it more time to pay off the gargantuan amount of debt that it has. All the company had to do was sell off $650 million worth of assets by 2017; it has succeeded in selling assets over the past year. For example, in April the company sold a large piece of land to Freehold Royalties Ltd. for $321 million. With one sale, it was already half way there.

And the company is going to continue making those sorts of moves. Further, the company is cutting back on overhead, employees, and capital expenditure. It is cutting capital expenditure from $732 million in 2014 to $650 million in 2015. This should hopefully put the company in a decent place to generate cash flow, which will further help it to pay off the debt.

Should you buy?

I would avoid buying Penn West right now unless you want to take a risk. If you already own shares, don’t sell them yet because if the company turns around, you have a chance to hopefully return to a positive number.

Three things need to occur for Penn West to succeed. The first is that it needs to sell an additional $330 million in assets over the next two years. The second is that it needs to continue getting its debt down by keeping costs low and pushing as much money into what it owes lenders. Finally, it needs the price of oil to go up.

If those three things happen, I see no reason why the stock shouldn’t trade at two to three times what it is currently trading at. However, as with most potential turnaround stocks, it could just as easily crash to zero. Therefore, invest only what you can risk to lose because this is a risky investment.

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Fool contributor Jacob Donnelly has no position in any stocks mentioned.