Penn West Petroleum Ltd. (TSX:PWT)(NYSE:PWE) has been on a downward trend for the past nine years.

That’s reason enough to steer clear of the stock, but some contrarian types are looking at the name and wondering if there might be a chance the company could survive the oil rout.

From star to dog

Penn West traded for $47 back in 2006. Today the stock is worth about $1.25 per share.

The plunge in oil and gas prices over the past year has made life difficult for energy companies with large debt positions, and Penn West is one of them. It is doing everything possible to stay alive in a very difficult market.

Earlier this year the company managed to renegotiate terms with its lenders as it worked to find buyers for some of its assets.

Penn West has actually done quite well, considering the circumstances. Management found buyers for $414 million in properties during the second quarter, and recent sales are bringing in another $398 million to help pay down the debt.

The market beat the stock down to $0.60 per share in late September, signalling a belief that the company’s days were numbered. Then a bout of takeover fever hit the oil patch, which then drove the stock back to $2 per share.

With WTI oil lingering at new multi-year lows and no buyer in sight, the stock is once again in retreat.

Is it worth a shot?

Penn West finished Q3 2015 with $2.25 billion in long-term debt. The company generated just $45 million in funds from operations in the quarter and spent $117 million on capital projects, so the cash flow is nowhere near capable of covering the costs of keeping the oil and gas flowing.

Penn West plans to reduce capital spending to stay within its funds from operations, but that will mean abandoning most of the company’s drilling activity.

The company simply doesn’t have the means to develop its resources.

Some investors are betting that oil is reaching a bottom and any increase in crude prices will drive the stock higher. That’s certainly possible, but the outlook for the moment is pretty bleak and the clock is ticking.

Other pundits speculate the company will be bought out. I think that is ultimately the end game, but buying the stock now on the assumption of receiving a big takeover premium is very risky.

There is no doubt that Penn West has very attractive natural gas and light oil assets that could generate significant cash flow in the right environment. Any of the larger companies with strong balance sheets could easily buy the company and simply sit on the resources until the market recovers.

The big question is the price.

If you take the debt position and add in the current market value of about $600 million, you get a minimum buyout price of just under $3 billion. That’s a drop in the bucket for a number of the company’s peers, but nobody has publicly stepped up yet, and that’s a bit of a concern.

The risk for investors is the possibility that the company goes bust before being sold. I would look elsewhere for opportunities in the energy sector.

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Fool contributor Andrew Walker has no position in any stocks mentioned.