PENN WEST PETROLEUM LTD. (TSX – PWT; NYSE – PWE.BC) (“Penn West“, “we“, “us” or “our“) announces that the Board of Directors has approved a highly disciplined capital budget of $50 million for 2016.  This budget responds to the significant decline in commodity prices and proposes capital spending levels 90 per cent lower than the 2015 planned capital program.  Our 2016 capital budget is consistent with the strategy announced on September 1, 2015 which limits our total expenditures to funds flow from operations, while driving down our cost structure.

“Given the present state of the commodity price environment, our 2016 capital budget reflects the reality of living within our means at current price levels and managing the business on a week to week basis,” stated Dave Roberts , President and CEO of Penn West.  “In 2016, we will be prudent in limiting our capital expenditures to protect our balance sheet and we will continue our focus on the economics of every dollar we spend even at the expense of maintaining our production levels.  We intend to only proceed on opportunities with near term payout at current price levels.”

Dave Roberts added, “The progress we have made in driving down costs, protecting our balance sheet, reducing our capital expenditures and eliminating our dividend, as well as our asset dispositions of over $800 million dollars to reduce our leverage, clearly demonstrates how this company is delivering results for both our equity investors and our lenders.”

2015 Operational Update

We had a strong finish to 2015 operations, with fourth quarter production volumes averaging over 77,000 boe/d.  Full year production delivery was above the mid-point of guidance, despite capital expenditures that were approximately $20 million lower than our guidance of $500 million .  Full year operating costs are expected to be below the bottom end of guidance and G&A is expected to be within the guidance range.

The 21 net wells we brought online in the fourth quarter in both the Crimson and Pembina areas of the Cardium continue to produce above our expectations.  At the end of the year, we had one net well in the Cardium and 21 net wells in the Viking drilled but not yet brought on production.  We plan to bring these wells on production in the first quarter of 2016.  At the end of the year, we were operating only two drilling rigs at our PROP joint venture where a significant portion of our working interest capital and operating costs are carried by our partner.

Dave Roberts commented, “Looking forward, we believe that the long term value of our core business is reflected in our strong start to 2016, based on drilling results in the Cardium and Viking – I can say with confidence that, while we will continue to find ways to make our company more resilient to falling prices, when the commodity price recovers, our deep set of opportunities in our core plays will be there to create value for all Penn West stakeholders – and we will be ready to get back to work.”

Production Outlook

Given our focus on managing the business at current price levels, we continue to monitor the profitability of each of our fields.  Our Budget reflects expected shuts ins of up to 4,000 boe/d of uneconomic non-core production during the first quarter of 2016.  We also anticipate that low commodity prices will weigh on the profitability of individual equipment repair or replacement projects at a certain portion of our non-core fields.  Therefore, we estimate the deferral of these projects will reduce our 2016 annual average production by an additional 2,500 boe/d.  We will be positioned to execute on these repair opportunities as the project economics improve to levels that warrant investment.

As a result of optimizing our operations for the current price environment, including the significant reductions to our capital program, we expect average annual production in 2016 between 60,000 boe/d and 64,000 boe/d, with a liquids weighting between 66% and 68%.  These ranges do not take into account any potential dispositions.  Our base decline remains approximately 20% to 22%.

Focus on Cost Structure

With a limited capital budget, the largest opportunity to reduce our cash outlays in 2016 will be through controlling our operating and G&A costs.  We are aggressively identifying and implementing additional measures to reduce costs at our operated properties.  Consequently, we expect to see an approximate 20% decrease in our absolute operating costs on a year over year, same field basis, which excludes the impact of dispositions.  We expect these measures to save approximately $120 million of operating costs.  For full year 2016, we expect operating costs to average between $18.00 /boe and $18.75 /boe.

We will continue to ensure that our organizational structure reflects our expectation of reduced activity levels in the foreseeable future.  In addition to changes announced last September, we anticipate that we will be able to reduce our annual G&A costs by a further $15 to $20 million through initiatives already in progress.  We expect 2016 average G&A costs will be in the $2.50 /boe to $2.90 /boe range.

2016 Capital Budget

Of our $50 million capital budget, we expect that approximately 30% of expenditures will be focused on our operated development programs.  In particular, we will complete work on wells drilled at the end of 2015 in the Viking and Cardium, as well as to fund our portion of the primary development program at our PROP joint venture net of amounts carried by our partner.  We do not anticipate starting work on any new wells in the Viking or the Cardium in the first half of the year.

Approximately 30% of our capital budget is allocated towards non-operated projects. However, we expect that if current price levels persist, our partners will seek to delay spending in some of these opportunities.  We are in discussions with our partners to defer investment in some of these areas.  To the extent these projects are delayed, it would create additional flexibility within our capital program.

A significant portion of the remaining capital will be for the replacement of critical infrastructure at core properties in the Cardium, where investment is required to maintain the reliability of our base production.  In addition to our $50 million capital budget, we expect that our decommissioning expenditures for the year will be approximately $20 million .

We remain committed to limiting our combined capital budget and decommissioning expenditures to be within our funds flow from operations. We will remain prudent in our pace of spending to maintain optionality throughout the year in response to further volatility in commodity prices.  We believe our non-core disposition program will help reduce capital requirements during the year and we continue to be in discussions with potential buyers across our non-core asset base.  Proceeds from dispositions will be used to reduce our senior debt levels rather than to fund additional capital programs.

2016 Guidance and Sensitivity

Our guidance for 2016 is as follows:


Guidance Range

Annual Average Production


60,000 – 64,000

Liquids Weighting


66 – 68

E&D Capital Expenditures

$ millions


Decommissioning Expenditures

$ millions


Operating Costs


$18.00 – 18.75

G&A Costs


$2.50 – $2.90

This guidance does not reflect any potential disposition activity.

We continue to focus our operational strategy on current commodity price levels and are using current strip pricing in our calculations, which we believe to be very conservative.  Despite this focus, we believe our enterprise continues to offer significant torque to a potential recovery in oil prices as outlined in the following table:

FY 2016

Jan 15, 2016
Strip Pricing

~US$33 WTI



Funds Flow from Operations

$ millions

$0 – $40

$80 – $120

$140 – $180


$ millions

$155 – $195

$235 – $275

$295 – $335

All cases assume average 2016 AECO price of C$2.45 /Mcf and average 2016 FX of C$1.45 /US$.

About Penn West

Penn West is one of the largest conventional oil and natural gas producers in Canada.  Our goal is to be the company that redefines oil & gas excellence in western Canada.  Based in Calgary, Alberta , Penn West operates a significant portfolio of opportunities with a dominant position in light oil in Canada on a land base encompassing approximately 4 million acres.

Penn West shares are listed on the TSX under the symbol “PWT” and on the NYSE under the symbol “PWE.BC”.

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