Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)

Penn West Petroleum Ltd (NYSE:PWE)

Q2 2012 Earnings Call

August 10, 2012, 12:00 pm ET

Executives

Jason Fleury - Senior Manager, IR

Murray Nunns - President & CEO

Hilary Foulkes - EVP & COO

Todd Takeyasu - EVP & CFO

Analysts

Greg Pardy - RBC Capital Markets

Kate Minyard - JP Morgan

Michael Zuk - Stifel Nicolaus

Jonathan Fleming - Cormark Securities

Gordon Tait - BMO

Brian Kristjansen - Canaccord Genuity

Roger Serin - TD Securities

Jeremy Kaliel - CIBC

Operator

Good afternoon. My name is Nick and I will be your conference operator today. At this time, I would like to welcome everyone to the Penn West Exploration 2012 second quarter results conference call. All lines have been placed on-mute to prevent any background noise. After the speakers remarks there will be a question-and-answer. (Operator Instructions) Thank you.

Jason Fleury, you may begin your conference.

Jason Fleury

Thank you and good morning. Welcome to Penn West 2012 second quarter financial and operating results conference call. My name is Jason Fleury and I am responsible for the Investor Relations Group here at Penn West. With me this morning in Calgary is our President and Chief Executive Officer, Murray Nunns; Chief Operating Office, Hilary Foulkes; and our Chief Financial Officer, Todd Takeyasu and other members of the senior management team.

Before getting started this morning I would like to quickly remind listeners of our customary conference call advisory. Penn West shares are traded both in the New York Stock Exchange under the symbol PWE and on the Toronto Stock Exchange under the symbol PWT. All references during this conference call are in Canadian dollars unless otherwise indicated and all conversions of natural gas to barrels of oil equivalent are done on a six to one conversion ratio. All financials are reported under International Financial Reporting Standards.

Certain information regarding Penn West and the transactions and the results discussed during the conference call including management’s assessment of future plans and operations may constitute forward-looking statements under applicable securities laws and necessarily involve risks. Participants are directed to Penn West second quarter news release and are also asked to review the advisory notice therein. This news release can be found at www.pennwest.com. Participants are also cautioned that the included list of risk factors contained within that release is not exhaustive.

Official information detailing other risk factors that could affect Penn West operations or financial results are included in reports on file with Canadian and U.S. Securities Regulatory Authorities and maybe accessed through the SEDAR website at www.sedar.com and the SEC website at www.sec.gov or at our own website www.pennwest.com.

During this conference call certain references to non-GAAP terms may be made. Participants are directed to Penn West MD&A and financial statements available on our website as well as filings available on the website noted earlier to review disclosures concerning non-GAAP items.

I will now turn the call over to Murray Nunns, President and Chief Executive Officer. Murray?

Murray Nunns

Thank you, Jason and good morning, everybody. Penn West strategies over the past five years really supported the evolution of the company away from the limitations of vertical development and into increasingly profitable horizontal technologies.

We have a history of proactive balance sheet management through ongoing strategic portfolio management which has included world class joint ventures and timely material asset dispositions. This has allowed us to execute our strategies which has ultimately led to significant increases in the intrinsic value of Penn West assets.

Two years ago less than 2% of Penn West production came from well bores using horizontal multi frac technology. By the end of this year, we anticipate 30% of our production will come from horizontal multi-frac wells.

These new light oil wells deliver significantly higher rates of returns in the long run. The value of this technology has added to our asset base and will only continue to grow in the future. Over the years Penn West has assembled and unlocked some of the most valuable plays in this basin.

Additionally, our portfolio includes a broad inventory of oil related properties which are not critical to our go forward strategies. We have demonstrated the abilities to sell these core assets at attractive valuations to accomplish strategic goals such as new play development or balance sheet support.

We have demonstrated our ability to make these deals happen and we believe that we are in a strong position today to achieve material value for the assets currently being considered for sales. Hilary will give you more color on this later in the call, but make no mistake we have the best of inventory and the ability to transact with a broad spectrum of potential buyers.

Commodity pricing is cyclical and is impacted by broad economic factors as well as obviously speculative volatility. We are mindful of these impacts on our business and we exercise prudent strength in all parts of the pricing cycle.

Additionally, pricing differentials between US benchmark WTI and Canadian crude oil streams have been weighing on Western Canadian producers for several months now. At times, the differential has been as much as $25 a barrel. While this has narrowed considerably since Q2, the volatility of this differential is persistent and has a significant impact on our netbacks. In both the US and Canada, active pipeline projects in various stages of completion indicate that there will be an easing of capacity constraints on Canadian crude in 2013.

Current infrastructure projects alone will not solve all the transportation refining access limitations in North America in the longer-term, but they are significant start. Export access from Canada and increased access to US refining is necessary for Western Canadian producers to fully realize the potential value of Canadian oil. Taking into consideration the impact of ongoing differential volatility in the hydrocarbon pricing and on our price realizations, we have adjusted our capital plans accordingly for the remainder of 2012.

Original net capital spending for Penn West was anticipated to be between $1.3 billion to $1.4 billion; we now anticipate our 2012 net capital spending to be between $1.2 billion to $1.25 billion. Our 2012 average daily production volumes are expected to be between 165,000 and 168,500 BOE per day. We have indicated to our shareholder base before that in softer portions of the commodity price cycle we would ensure consistency in the dividends while delaying growth plans. Over the last three years we have taken appropriate measures to ensure balance sheet integrity.

Let’s just go over to Canadian (inaudible) we don’t sit into the corner with our head down, so I would like to remind shareholders that Penn West Board of Directors has declared a third quarter dividend of $0.27 per share to be paid on October 15, 2012 to shareholders of record on September 28, 2012.

I'll now pass the call to Hilary Foulkes, our Chief Operating Officer to give you greater insight into our A&D programs in particularly and our ongoing operations.

Hilary Foulkes

Thank you, Murray and good morning. Murray has laid out the strategy behind our asset disposition program and I want to provide you with some color on how this is progressing.

Ongoing portfolio management is necessary as we continue to high grade our asset base. This process increases our focus, improves core productivity, while funding development efforts. Non-core asset sales, earlier this year were scattered properties sold largely into the junior markets and contributed over $340 million in proceeds.

The assets and the process we are currently engaged in is quite different; we are actively marketing a number of properties suitable for both outright sales and joint venture. Quite simply, we will determine which properties to transact on based on value. The assets are the size which attracts an entirely different buyer group than our other transactions earlier this year.

The size, quality and composition of these assets is attracting interest from private equity, pension funds, life insurance companies and national oil companies. As outlined in the press release earlier this morning, we are targeting $1 billion to $1.5 billion in proceeds. Based on current interest levels we are confident we will be able to transact.

Now a quick operational update for the second quarter. Our capital program continues to deliver strong results with early production at or above expectation in all major plays and in significant number of other fields we talked about those frequently.

In this Spearfish, operations are in full development. We are realizing a reduction of approximately 15% from our Q1 2012 cost. This equated to a savings of approximately $200,000 per well. We view the Spearfish as an example of the efficiencies that can be gained when full scale development occurs.

We anticipate the NGL recovery plant will be onstream by the third quarter of 2013 and gas contribution will follow in 2014 on completion of a third party transmission line. We remain confident we will reach 14,000 barrels per day of production in this play in Q1 2013 which is our facility capacity.

You may have heard this on previous calls it’s the drill-it and fill-it strategy. We generally confine our comments to this big four oil plays, but the results at Swan Hills are exceptional and bear mentioning.

At East Swan Hills, we drilled seven wells this year. A recent fleet completed dual lateral horizontal well is particularly noteworthy. The first leg of the well had peak rates of 1,500 BOE per day and produced more than 24,000 BOE over a 24 day period. That makes the finger math easy.

The second leg tested peak rates of over 800 barrels a day. Our six of 15 wells has the peak rates of 1,950 BOE per day. This well has averaged over 650 barrels a day in the first month of production. Five other wells completed in 2012 are either producing at or above THAI curve expectations currently are based on test results are expected to. Planning is underway to increase our gas handling capacity in 2013 to support an ongoing program in East Swan Hills.

In the Slave Point play the Swan Lake area continues to impress us, as successful (inaudible) increased our confidence and well performance is very consistent. We have a major facility upgrade which is expected to be onstream in the fourth quarter of this year and this will allow us the capacity to accelerate activity as we have a significant inventory in Swan Lake supported by our very large land position. Our aggressive program in Otter is delivering as expected and we are seeing successful gains and efficiencies with our most recent dual lateral drills in two thirds of the time we projected. This equates to a cost savings of $1 million.

We believe that Slave Point at Swan, Otter and Red Earth also present us significant price to EOR development which we expect to accelerate in 2013. Excitement over Western Canadian plays remains high, and our 230 section almost five township land position in the Duvernay is in the liquids rich to oil airway. In the immediate vicinity of our largest block which is 167 sections at Williston Green, eight competitive wells have been drilled with a cross section of results helping to further define the liquids rich fairway.

Our 100% working interest vertical exploratory well drilled and completed over the past year is in line with recently released liquids rich competitive results from the perspective of gas compositions, thermal maturities and calculated deliverability, while its still early stage we are very pleased with both the size and the location of our acreage.

We are very well positioned to be a material player and as emerging resource. The second quarter average production was in line with expectations both internally and on the street based on the slowing the pace of capital spending which Murray outlined earlier in that call and which has been detailed in our press release this morning.

We anticipate third quarter average production to be slightly higher than our second quarter average volume roughly in the mid 160s. It is consistent with the updated 2012 full year average annual production guidance updated this morning. 165,000 to 158,500 BOEs per day. While weakness in the commodity prices is outside our control we've been very active in addressing our cost both capital expenditures and operating expenses.

We've demonstrated capital cost savings through efficiencies fees that come from full scale development, from consistent long-term relationships with service provider and from internal procurement and operational strategy.

These improvements come from lowering average drilling time, uniform well design and key development phase, stockpiling material and consistency approved to both drilling and completion. We have been successful in leveraging our size and activity levels to ensure top tier status with our service providers. Beyond efficiencies and relationships when commodity prices result in lower activity levels, there are also absolute service cost savings that needs to be realized. We have proven up one of the most extensive light oil inventories in North America. We continue to rationalize and titrate our asset base, we’re realizing cost reductions and our program continued to deliver as expected. It also then punctuated with some exceptional results as you heard this morning.

Just before we take some questions, I would like to introduce the other members of our senior management team in attendance today. In addition to Murray Nunn, Todd Takeyasu and Jason Fleury with us here this morning. Dave Middleton, Executive VP and Managing Director of Peace River Oil Partnership, Mark Fitzgerald, Senior Vice President Development; Greg Gegunde, Senior Vice President Production, [Stan Jenson], Senior Vice President Operations. Keith Luft, General Counsel and Senior Vice President Stakeholder Relations. Rob Wollmann, Senior Vice President Exploration, Jeff Curran, Vice President Accounting and Reporting and Magney (inaudible), Manager and Crude Oil and Marketing.

I would now like to turn the call over to the operator and open up the phone line for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Greg Pardy from RBC Capital Markets. Your line is now open.

Greg Pardy - RBC Capital Markets

Thanks three quick ones for me. Just curious as to how many wells you have got behind pipe just waiting titrate now and then with respect to the asset dispositions just curious how granular you could at this stage how formal is the process you are moving forward with timing and curious as to whether you could give any sense as to what production range we could be talking about if you go from a 1 billion to the 1.5 billion level?

And the last question what would you be looking at in terms of optimized debt metrics post the asset sale? Thanks very much.

Murray Nunns

I will take on that first question in terms of how much behind and how many drilled. Actually I would say about three quarters of our drilling for the year is actually already in the bag we did a lot in the first half lot of that’s pad drilling, it will be complete and tied in the second half or spread out of cost for second half as we complete in time.

The difficulty in giving single numbers is that the second half although a smaller portion of the well count are actually the bigger wells they are dominated by wells on the Slave Lake, Swan Hills and Cardin play were much later on the shallow plays. So well camps alone really are actually misleading and in fact a lot of the wells I am going to put a ballpark out there it’s 25 to 30 times in the second half most of those are duals, so they actually add up to significantly more volumes, so really that’s why we are staying from giving individual numbers. Could you just refresh on rather two questions.

Greg Pardy - RBC Capital Markets

Yeah sure, so let me just go right to the debt metric question so just Murray post the asset sales then what do you want your balance sheet to look like from a metric standpoint?

Murray Nunns

I will throw that one to Todd.

Todd Takeyasu

Hi Greg really as you know what balance sheet should be hasn’t changed in a low pricing environment as we like to see 1.5 to 2 times and a higher pricing point in the commodity price cycle we would like to see something inside of 2.5 so we are really looking to do relatively significant balance sheet reset here such that we can get into a more continuous mode of operation, really worrying about the balance sheet we think that commodity prices are looking much more favorable two or three weeks ago and we are pretty optimistic that way and we talked a lot about the asset sales in there significant part of resetting our balance sheet.

Greg Pardy - RBC Capital Markets

Thanks Todd. And then just the last question was what’s the potential production impact you could see or is it just too early?

Murray Nunns

Probably too early to cover that I think it really depends we have got a real breadth of character of assets that are going out and I think it depends which ones we choose to sell sort of thing. So we are obviously concentrating on ones that will yield the highest for the least and that’s the general form of it I don’t think it see us going past 10,000 in any form or fashion.

Operator

Your next question comes from Kate Minyard from JP Morgan. Your line is now open.

Kate Minyard - JP Morgan

Just a couple of quick questions, first of all just on the CapEx you guys have trend $100 million to $150 million I am just kind of curious as to where that might be it looks like there is a little bit of production impact but it seems to me that if you were cutting CapEx may be prior guidance would have suggested you were going to trim in areas that might lead to future production like EOR and yet you are still pursuing EOR so is it maintenance CapEx that you are cutting in some of the less profitable areas or where is that trend?

Hilary Foulkes

The cuts really are pretty much little bit across the board. So there's no one area that we are targeting you know we know that some of the I mean there's little bit that we can spray thoughts in a number of different areas we don't want to get any particular area hard and we want to be able to continue to complete the high end, the inventory that we drove in the first half of the year.

Kate Minyard - JP Morgan

Okay, and then just a question on the dispositions and kind of the strategic rationale, it looks like you've mentioned not only you are pursuing assets for sale but you also mentioned the potential for JVs and so I guess my question really is are the dispositions primarily designed to unlock value that you think is not being recognized in the current share price or is it related to get rid of assets that are non core in the portfolio to kind of more focus on core areas. My assumption is that if you were looking at JVs you would return operator-ship. So how do you kind of balance the two objectives in the dispositions program, thanks.

Hilary Foulkes

Sure. There's a couple of things. First of all we look at our asset bases giving us the leverage per choice. So that's the settlement where we have a very broad asset base, its going to allow us to look at focusing on core areas. So if we can get out at non operated areas, if we can get out of some of our non core properties that would certainly help and those are cash dispositions.

On the joint venture side these are for areas that are still very early in their evolution from a value perspective. And we don't want to define what the ultimate value is through a cash disposition. And then it makes much more sense for us to retain operator-ship for us to get cash as the down payment if you like and then (inaudible) what we have done in some of our previous joint ventures. So it's a combination of the two that we’re looking at has pull here in the relatively near-term.

Kate Minyard - JP Morgan

Okay, and I realized that it might be early but do you have kind of a notion as to the breakdown in kind of the total amount as to rough percent that might be sales versus JV or is it account?

Hilary Foulkes

No. It is difficult to tell. We want to make sure that we have choices and so we thought a lot of potential transactions that we can do and we will do is as the appropriate time, we will narrow it down to you know, probably one or two and so really its too (inaudible) to design what that’s going to look like.

Operator

Your next question comes from Michael Zuk from Stifel Nicolaus. Your line is now open.

Michael Zuk - Stifel Nicolaus

Yes, good morning. This is a question for Hillary. I would assume. I am just looking for a little more detail on perhaps your Duvernay strategy and anything, anymore color you get down there will be helpful.

Hilary Foulkes

We had give away that top secret information this morning by saying that we drilled and exploratory well, vertical well and they get areas just in the in the Willesden Green region of the liquid rich fairway. So that’s a good start. So you should be able to take a look. Public data and see where that is and you know, we kept this obviously pretty quite while land acquisitions was still heated and now we’re happy to talk about some of the results at least from a preliminary perspective and we’re very pleased, we said in the call this morning where we are positioned relative to competitors wells and to the early analysis that we have done but it’s too soon for us to talk about a lot of detail we are still looking at all the set of the works that has to go on. The 157 sections in most green that’s a pretty contiguous land block and that gives us very good leverage go forward. We are looking at some activity a little bit further north as well.

And in the meantime we are watching to see how our competitors go about drilling and completing these big wells and we are in no rush we can see how results come in from surrounding competitors. So it’s kind of, we are cautiously optimistic and we are going to be very prudent in the way that we go forward with development.

Murray Nunns

One of our experiences on all of the place we have entered into is that the early phase is the expensive phase that’s where you pay for your learning on the bleeding edge when you are trying to figure out one of this place. Frankly we are happy to have those they don’t have the depth of inventory than we have go out and (inaudible) and really bring it to what the commercial practices will be before we get in the game. So we are not going to be pushing a lot of dollars in this, we got turn, we have got time, we are going to wait.

Michael Zuk - Stifel Nicolaus

So it was other horizontal well or a vertical well?

Hilary Foulkes

No, this is vertical well.

Murray Nunns

Vertical.

Michael Zuk - Stifel Nicolaus

So it’s fair to say the next catalyst would be more industry activity versus the price (inaudible) of an event?

Hilary Foulkes

Yes.

Operator

Your next question comes from Jonathan Fleming from Cormark Securities. Your line is now open.

Jonathan Fleming - Cormark Securities

I was primarily going to ask about your Duvernay development plans but it sounds like that’s why are they have [not] answered, could you talk a little about service costs and how you see that developing through the back half of the year?

Hilary Foulkes

Sure, I will may be jump on that one. Quick thought, but tricky to come down I guess is the first comment. What we are seeing so is the inventory from Q1 for pretty much the whole industry is still being worked through. So there is some areas where we are seeing greater downward pressure on costs and other areas that are largely driven by oil sands activity.

So on the fabrication side (inaudible) tanks those kinds of things, that’s tougher because the oil sands is the competition. For day rates we are seeing release there on some of the equipments and purchases calling water hauling much directional those kinds of things. We are starting to see some softening in prices.

For us one of the greatest kind of components of leverage is size and scale of our operations and then the efficiencies that come from repeating our drilling program, completion programs like over and over again. So when we can reduce drill days, that’s got the biggest impact on our overall costs and that’s what we are seeing pretty much across the board now. (Inaudible) we are seeing improvements in our actual drill times and that’s where obviously you cut two or three days or sometimes a week off drilling and that’s where you are going get your biggest cost savings.

Operator

Your next question comes from Gordon Tait from BMO. Your line is now open.

Gordon Tait - BMO

Good morning you touched on this early in your comments, your opening comments right now was on the differentials, both heavy light and Canadian US. Some companies are accessing rail lines to help know those differentials or to mitigate them. Can you talk about what you are doing to try and mitigate the impact of these fluctuating differentials and may be a little more specifically on where you see them going in the next 12 months.

Murray Nunns

Okay, I will take it from the specific and then broaden out I think on the general. On the specifics you know what we've seen, we've really seen some bouncing around. I mean in fact we are seeing two forward months right now on some light crudes. We've actually seen a positive and just a minus 250, so we are not at a point where we are squeezed continuously. So the trick really then is we've gone to direct marketing to the refineries ourselves, probably over 80% to 85% of our crude is handled that way.

And is really working continuously, selectively in a variety of different locales in the US, not just had to but really broadening out that effort. So I think first and foremost is sort of having an eye for opportunity in this volatile market is I think the number one truly you got on this (inaudible) through here. And then on to rail I think there's some selective areas we are looking at rail and we see rail as really a short term solution.

You are not going to put a 100,000 barrels on rail cars, 700 barrels at a time and really make a dent for on extended period. Refineries aren't set up for that. So selectively in areas where pipeline access isn't there and there's good rail carters, that will work.

So that's in the short term I think there are two key things. Then as we move into the longer term, when we look at sort of the supply pipeline infrastructure balance, we really see the key events in Q2 and Q3 next year. The balance of the seaway completion on the southern portion of Keystone completion really being trigger events to where we move to excess capacity in the system for Canadian crudes and crudes in the center portion of North America.

That doesn't mean just a tighter West Texas prices that also means a potential That also means a potential time from our perspective to more oil prices that are in the Gulf Coast. And in that lane, we've tied up 3,500 barrels a day transportation starting in late 2012. A small portion starts in late 2013 and the balance kicks in 2014 and will give us access right through.

So it starts remove this issue in a big way. I think the market will start to anticipate that in advance of it actually occurring to those projects are ongoing and active. So like you say major short term maneuvers, position yourself and then in the long run, I think by next summer, we will out of the shadows of the infrastructure problems.

Gordon Tait - BMO

Is that going to be like if you look at your seal develop (inaudible) years down the road with that heavy oil like the effect where you spend your money in the next couple of years that have gone light over heavy oil properties?

Murray Nunns

Yeah, I think it is something we monitor but you know, as we said, the main bulk of steel production is really tied to more period of 15, 16, 17. So for the interim, virtually all our entire inventory is driven on light oils

Operator

Your next question comes from Brian Kristjansen from Canaccord Genuity. Your line is now open.

Brian Kristjansen - Canaccord Genuity

Just a couple of questions for Tom. First with respect to the G&A up over the quarter, above our 13% over Q1. You are talking about higher staff and salaries. Is that something we should be forecasting go forward to Q2 number?

Todd Takeyasu

I think the numbers we expect that to be flat over the remainder of the year. We are continuously shuffling staff and turn to high grade staff and as a result, you see the little bump that you note, but we believe that our second quarter provision is represented of a reasonable go forward G&A rate.

Brian Kristjansen - Canaccord Genuity

Thank you. And then with respect to royalties just the year-over-year commodity prices were down and you have got an increase and you have noted that the higher percentage of production way to (inaudible) I was expecting with the bulk of horizontal activity that you probably see more credits is there anything within that number outside of the waiting to liquids or is that the (inaudible).

Murray Nunns

Really what you saying there is an effect of the differential because the Alberta oil wells you rated 70% Canadian WTI to the extent that we had hit by the differential, we get hit by hard and normal differentials in the second quarter, it has an effect on the overall royalty rate which you correctly note there.

Operator

Your next question comes from Roger Serin from TD Securities. Your line is now open.

Roger Serin - TD Securities

First question Murray following up on what you said have you nominated for the capacity on Seaway, Keystone or (inaudible) just remind where you are at?

Murray Nunns

We are tied up 35,000 barrels on Wrangler which effectively is the Seaway route, so that’s the main correction we have done right now.

Roger Serin - TD Securities

Unrelated but trying to get some color, truly gas prices has improved quite a bit from where they were just in Q2, but have you updated your strategy in terms of shut-in strategy than whole lot of it solution gas and in some cases through operated facilities, but when you look at gas prices at $2 net backs are pretty skinny. So have you got any revisions to strategy on shutting in gas at if gas prices actually pull back again.

Murray Nunns

Yeah, we've gone through everything and basically two-thirds of our gas is tied up, but these are associated or liquids rich. So that's pretty much not something we are looking at, we can find a 100 million cubic foot a day of dry gas and then when you start to narrow it down we've got -- when you look at the operated portion where we control the valve and high working interest where (inaudible) shut, we were really down at 50 to 60. The biggest trouble is when we look at this, the general cost of shutting in for a short period you really have to do it for an extended period to make it worthwhile.

So just the operational shutdown once you get into two to three months of this, the cost of shutting down versus what you are losing is a balance question we have to ask ourselves. So I think if we saw are persistent to heading for six months to a year, we would look at that portion of our production. But it will still be just I think in the range of 50 million to 75 million cubic foot a day max and what we would look at.

Roger Serin - TD Securities

And I guess to be fair to your segment and statements put the NGLs with the light oil side which really understates the revenue on the gas side.

Murray Nunns

Exactly.

Operator

Last question comes from Jeremy Kaliel from CIBC.

Jeremy Kaliel - CIBC

First can you give us any color on field operating conditions right now and are you done with turnarounds or is that going to be affecting your Q3 production volumes as well. And second question given that you have JVs with Mitsubishi and CIC, is there any read throughs here from the recent Nexus progress deals announced and could you just give your general thoughts on asset valuations in this market?

Hilary Foulkes

Jeremy, I will jump in and take the first one. Just in terms of operating conditions, breakup has been long. It's (inaudible) out there and it's pretty pervasive. It's every part is a basin. So it's not been anything where we’ve been snorkels and slippers this year but it’s just been generally pretty soggy up there. It has had an impact and as far as turnarounds are concerned, we have a big turnaround season coming up in Q3 as well.

Peak volumes that will be shut in, associated with those turnarounds are at the 14,000 barrel a day range, that’s peak. So it's significant. However, it all been taken into accounts in our forecast and it is not something unexpected and you know, part and parcel of our forecasting for average volumes is including that.

Murray Nunns

On to your other question Jeremy around Mitsubishi, CIC and asset valuation, I think there is a couple pieces to address on that front. I think number one, I think it shows particularly the progress deal underscores the value of the long-term resources that are being unlocked in Western Canada.

I don't think that can be lost on any one. But I also think that points the asset valuations. You know, as technology has shifted, I don’t think valuations in this market have fully moved in conscious with them. I don't think there is a recognition. If you looked at a company like Penn West five years ago you would have seen an inventory of may be two years worth of projects. Now you see an inventory of 10 years worth of projects or 15 years worth of projects. I don’t think that valuation is fully in the market. I think as we described and we have been in the Tom Clancy, it’s called the sum of all fears and that’s in the last quarter.

So I don’t think Canada and the Canadian markets have truly put those values on the table. Now what’s curious that others outside of Canada recognize that and recognize that opportunity exists in there and frankly so I don’t think it matters what your scale is if you are junior or you are us whether you are a client or a seller.

I think the valuations are going to be less driven by sort of the cash flow multiples and more by the value of those underpinning resources that are available for the future and that’s where valuations are going to ultimately migrate to for good resources basis.

I would just like to thank everyone for attending on the call today. We do appreciate your time especially if it’s sunny wherever you are. Anyway everybody enjoy your weekend and thanks for your time today.

Operator

This concludes today’s conference call. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Penn West Petroleum's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts