Obsidian Energy

Obsidian Energy Ltd.
Obsidian Energy Ltd
Public
Traded as TSX: OBE
NYSE: OBE
Industry Oil and natural gas
Founded Calgary, Alberta, Canada (1979)
Headquarters Headquarters in Calgary; oil and gas wells throughout western Canada
Key people
 David L. French, President, CEO
Products Oil and natural gas
Number of employees
 300 (2017)[1]
Website www.obsidianenergy.com

Obsidian Energy Ltd. (previously known as Penn West Exploration Ltd., Penn West Petroleum and Penn West Energy Trust) is a mid-sized Canadian oil and natural gas production company based in Calgary, Alberta.

For a while it was one of the S&P/TSX 60, the sixty largest companies on the Toronto Stock Exchange. From 2005-2011 it was a Canadian royalty trust (CANROY), and reached a peak market capitalization in January 2008 of approximately US $9.5 billion.

The company experienced operational and financial difficulties when crude oil prices fell significantly in 2014. As a result, the company underwent a significant restructuring with the majority of the assets sold over the next two years to reduce debt[1].

Obsidian's oil and gas fields are located in Alberta, along the Western Canadian Sedimentary Basin, a region which is one of the world's largest petroleum reserves. Production comes from three key areas in Alberta: the Pembina Cardium, the Peace River oil sands, and the Alberta Viking. Total production in 2017 is expected to average approximately 31,000 bbl equivalent per day.

On 26 June 2017, Penn West Petroleum changed its name to Obsidian Energy.[2]

Penn West investments

Penn West Energy Trust paid a high dividend, yielding an annual rate of between 15 and 16% in early 2008; in addition, it paid out monthly, a relative rarity for equities listed on the New York Stock Exchange. Since the Trust's assets are considered a depletable resource, its dividend payments are not taxed at the regular dividend rate, but rather as return of capital instead of return on investment. This is an additional tax advantage in the United States, and applies to all royalty trusts.[3][4]

At the Penn West shareholders annual general meeting in May 2015 company executives "admitted to accounting irregularities last year. The company said it currently faces six different lawsuits from investors in Canada and one consolidated lawsuit in the United States. More recently, the company was hit with a lawsuit regarding allegations of stock option manipulation."[5]

Canadian royalty trusts (CANROYs)

Penn West was one of a group of oil and gas producers which also included Advantage, ARC Energy, Baytex Energy, Bonavista Energy, Bonterra, Canadian Oil Sands, Crescent Point Energy, Daylight Resources, Enerplus Resources, Enterra, Fairborne Energy, Freehold Royalty, NAL Oil & Gas, Paramount, Pengrowth, Peyto Energy, Progress Energy, Provident Energy, Trilogy, Vermillion Energy and Zargon Energy who did not pay "federal income taxes if they distributed their income to shareholders."[6]

"The resulting double-digit dividend yields grabbed dividend investors’ attention in the mid-2000s. Eventually the government cracked down and starting in 2011, trusts were required to pay the same taxes as regular corporations. Consequently, all trusts converted to corporations, and many cut their dividends."

— Harry Domash

On January 1, 2011, Penn West converted from a CANROY to a conventional corporation.[7]

Accounting irregularities

In July 2014 Penn West's own newly appointed Chief Financial Officer David Dyck had discovered and reported irregularities in the company's accounting practices that "misclassified nearly $300-million in expenses."[8]

Penn West had cut back its work force by almost 50% from late 2012 to June 2014.[8] Penn West's profit in the second quarter of 2014 was $143-million, or 29 cents per share.[8] Rick George who was Suncor's CEO from 1991 to 2012 served as Penn West's CEO from 2013 to 2014.

Penn West reported that preliminary findings revealed irregularities totaling "$381-million in 2013 and 2012." Penn West notified Canadian and U.S. regulators about the irregularities and expanded their own investigation to review results going back to 2007. Lawsuits tied to the accounting irregularities include those in Canada and a class action lawsuit in the United States.[9] According to CBC News, by the end of July 2014, independent auditors contracted by Penn West to review its books uncovered that "$70 million worth of operating expenses that were reclassified as capital expenditures on things like property, plant and equipment in fiscal 2013; $110 million of similar expenses incorrectly classified in fiscal 2012; $100 million in operating expenses that were incorrectly reclassified as royalty expense" in 2012 and 2013.[10]

The 2012, 2013, and 2014 financial statements were audited by KPMG LLP. KPMG was replaced by Ernst & Young LLP for the audit of the 2015 financial statements.[11]

Economic contraction in the economy of Alberta in 2015

Since June 2013 Penn West began decreasing it workforce from 2,350 employees to fewer than 1,000. In response to the recent decline in oil prices, on September 2, 2015 Penn West Petroleum Ltd., announced cuts of about 400 full-time employees and contractors mainly from the company'a headquarters in Calgary which represents 35 per cent of the total workforce at Penn West.[12]

Penn West also suspended "dividend payments to its shareholders after its next payment in October and reduc[ed] compensation for its board of directors."[12]

References and notes

  1. 1 2 "Analyst Day Presentation 2017" (PDF). Retrieved 2017-06-07.
  2. ↑ "About Obsidian Energy | Obsidian Energy". 2017-09-05. Archived from the original on 2017-09-05. Retrieved 2017-09-05.
  3. ↑ Full description of Penn West at Reuters
  4. ↑ Wall Street Journal information page on PWE
  5. ↑ Kyle Bakx (13 May 2015). "Lawsuits the latest challenge for Penn West Calgary-based energy company facing litigation on both sides of the border". CBC News. Retrieved 2 September 2015.
  6. ↑ Domash, Harry (2011), Canadian Energy: Exploration & Production, Dividend Detective, retrieved 23 December 2014
  7. ↑ "Penn West Petroleum Ltd (TSE:PWT)", Google Finance, 23 December 2014, retrieved 23 December 2014
  8. 1 2 3 "'No impact on our strategic direction': Penn West to review results dating back to 2007". Canadian Press via Financial Post. 18 September 2014. Retrieved 2 September 2015.
  9. ↑ Carrie Tait, Jeffrey Jones (1 August 2014). [The Globe and Mail Published Friday, Aug. 01, 2014 7:2 "he Penn West saga: Tom Budd, Rick George and a drama in the making"] Check |url= value (help). The Globe and Mail. Retrieved 2 September 2015.
  10. ↑ "Penn West to restate results after accounting irregularities Calgary oil company worth $5 billion will restate 4 years worth of results". CBC News. 30 July 2014. Retrieved 2 September 2015.
  11. ↑ http://pennwest.mediaroom.com/index.php?s=27585&item=135250
  12. 1 2 Canadian Press (2 September 2015). "Penn West Petroleum, ConocoPhillips Canada slash hundreds of jobs Most of the 900 job losses between the 2 companies will be from Calgary offices". CBC News. Retrieved 2 September 2015.
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