Is Penn West Petroleum Ltd. a Turnaround Play, or Is it Headed Towards Bankruptcy?

Penn West Petroleum Ltd. (TSX:PWT)(NYSE:PWE) released second-quarter earnings on July 30, and its stock has reacted by falling over 2%. Is it worth buying today?

The Motley Fool

Penn West Petroleum Ltd. (TSX:PWT)(NYSE:PWE), one of the largest conventional oil and natural gas producers in Canada, announced second-quarter earnings results before the market opened on July 30, and its stock has responded by falling over 2%. Let’s take a closer look at the results to determine if its stock is a turnaround play, or if we should avoid it indefinitely.

Lower commodity prices lead to a very weak performance

Here’s a summary of Penn West’s second-quarter earnings results compared with its results in the same period a year ago.

Metric Q2 2015 Q2 2014
Earnings Per Share ($0.06) $0.29
Gross Revenues $360 million $656 million

Source: Penn West Petroleum Ltd.

In the second quarter of fiscal 2015 Penn West reported a net loss of $28 million, or $0.06 per share, compared to a net profit of $143 million, or $0.29 per share, in the year-ago period, as its gross revenues decreased 45.1% to $360 million.

These very weak results can be attributed to the steep decline in commodity prices compared with the year-ago period, which led to the company’s average realized selling price of light oil and natural gas liquids decreasing 39% to $58.05 per barrel, its average realized selling price of heavy oil decreasing 41.6% to $46.44 per barrel, and its average realized selling price of natural gas decreasing 44% to $2.78 per thousand cubic feet.

Here’s a quick breakdown of 10 other notable statistics from the report compared with the year-ago period:

  1. Total production decreased 14.6% to 91,164 barrels of oil equivalents per day
  2. Production of light oil and natural gas liquids decreased 8.1% to 51,275 barrels per day
  3. Production of heavy oil decreased 12.3% to 11,947 barrels per day
  4. Production of natural gas decreased 25% to 168 million cubic feet per day
  5. Revenue from the sale of light oil and natural gas liquids decreased 42.7% to $266 million
  6. Revenue from the sale of heavy oil decreased 48.5% to $51 million
  7. Revenue from the sale of natural gas decreased 53.8% to $43 million
  8. Funds flow from operations decreased 73.6% to $79 million
  9. Funds flow decreased 84.2% to $47 million
  10. Long-term debt at the end of the period totaled $2.21 billion, a decrease of 1.3% from the end of the year-ago period

Penn West also announced that it will be maintaining its dividend of $0.01 per share in the third quarter, and it will be paid out on October 15 to shareholders of record at the close of business on September 30.

What should you do with Penn West’s stock today?

It was a terrible quarter for Penn West, so I think the post-earnings drop in its stock was warranted. I also think the stock will head significantly lower from here because there are little to no catalysts of growth for the company going forward, and because commodity prices remain under pressure. In fact, I would go as far to say the company is more likely to go bankrupt than it is to ever see its stock above $5 without the use of a stock split.

With all of the information above in mind, I think Foolish investors should avoid investing in Penn West Petroleum indefinitely.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stocks mentioned.

More on Energy Stocks

Arrowings ascending on a chalkboard
Energy Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Canadian Natural Resources stock is well set up to beat the TSX as it continues to generate strong cash flows…

Read more »

energy industry
Energy Stocks

2 TSX Energy Stocks to Buy Hand Over Fist Now

These two rallying TSX energy stocks can continue delivering robust returns to investors in the long term.

Read more »

green energy
Energy Stocks

1 Magnificent TSX Dividend Stock Down 37% to Buy and Hold Forever

This dividend stock has fallen significantly from poor results, but zoom in and there are some major improvements happening.

Read more »

oil tank at night
Energy Stocks

3 Energy Stocks Already Worth Your While

Here's why blue-chip TSX energy stocks such as Enbridge should be part of your equity portfolio in 2024.

Read more »

Solar panels and windmills
Energy Stocks

1 Beaten-Down Stock That Could Be the Best Bet in the TSX

This renewable energy stock could be one of the best buys you make this year, as the company starts to…

Read more »

Dice engraved with the words buy and sell
Energy Stocks

Is Enbridge Stock a Buy, Sell, or Hold?

Here's why Enbridge (TSX:ENB) remains a top dividend stock long-term investors may want to consider, despite current risks.

Read more »

Gas pipelines
Energy Stocks

If You Had Invested $5,000 in Enbridge Stock in 2018, This Is How Much You Would Have Today

Enbridge's high dividend yield hasn't made up for its dismal total returns.

Read more »

Bad apple with good apples
Energy Stocks

Avoid at All Costs: This Stock Is Portfolio Poison

A mid-cap stock commits to return more to shareholders, but some investors remember the suspension of dividends a few years…

Read more »