Penn West Petroleum Ltd. (TSX:PWT)(NYSE:PWE) has bounced back from its near-death experience.

Let’s take a look at the troubled oil producer to see if more upside could be on the way.

Back from the dead

Penn West traded for more than $40 per share a decade ago. The trajectory has pretty much been downhill since then, and the stock actually broke below the $1 mark twice this year.

The subsequent recovery to the current price of $2.30 is great for those who had the courage to buy a few months ago, but the rally is little consolation for long-term holders of the stock.

What happened?

As with many of its peers, Penn West got caught carrying too much debt when oil prices plunged.

Management spent most of the past two years unloading assets to get the debt level down to a point where it could survive. Despite making some progress, the situation hit the wall in June, and the market thought the battle was pretty much lost.

Then Penn West announced a major deal.

The company sold its Saskatchewan assets for $975 million and suddenly had a manageable balance sheet.

With the banks off its back, Penn West announced a surprising plan to boost its capital plan when it reported the Q2 2016 numbers.

The company is spending an additional $40 million in 2016 and plans to spend $150 million next year. This should enable Penn West to grow production by at least 10% with all development costs fully paid out of funds from operations.

That’s pretty good in the current environment.

Additional news

At the beginning of October, Penn West announced an offer to redeem $448 million in debt. Cash from dispositions will be used to prepay the notes.

The result will bring pro-forma senior debt down to $470 million, which is much better than the $2 billion the company had on the books at the beginning of the year.

Penn West also has a new CEO starting October 24. The new boss, David French, recently led Bankers Petroleum.

Could Penn West double?

Penn West is a much smaller company as a result of its divestitures, but it now has the balance sheet strength and financial flexibility to grow its remaining asset base competitively.

Oil and gas prices will have to move higher for the stock to take a run at $5, but Penn West could pick up some momentum in the coming months as investors warm up to the company’s new look.

Should you buy?

Energy prices remain volatile, so I wouldn’t back up the truck, but a contrarian investment in the name looks a lot safer today than it did just a few months ago.

If you are an oil and gas bull, Penn West might be worth a shot.

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