Penn West Cuts Distribution, But Does Management Have Any Credibility?

| About: Penn West (PWE)

Bill Andrew was on BNN a few days ago day and Kurt Wollff reported:

Responding to an investor question on the call today about whether the monthly distribution of C$0.23 could be sustained at lower price, Chairman Bill Andrew was quick to reemphasize that the indicated income level is matched to an oil price of US$45 a barrel. Mr. Andrew said the distribution would still be positive at a hypothetical lasting price of $35. Interest costs magnify the sensitivity of distribution to price just as debt magnifies the sensitivity of NPV to oil price. Those concerns are moderated by hedges that assure an oil price of US$80 a barrel in 2009 for about 30% of oil production.

They just had a presentation by the VP Murray Nunns on March 11th at the Canadian Energy Conference. Nunns was touting the stability of the distribution and how the trust was geared to the current energy price decks. He also discussed the flexibility they have under their current credit agreements.

Nunns pointed out as of March 11th their Payout Ratio (POR) was 60%. The price deck in crude was substantially lower then.

You can listen to Nunns' presentation here.

After the cut. I have their POR at 38%. One would think this was sustainable. However, the management appears to have credibility issues.

Disclosure: none