Penn West Exploration announces its 2013 capital budget

Wed Jan 9, 2013 9:19pm EST

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CALGARY,  Jan. 9, 2013  /PRNewswire/ -  PENN WEST PETROLEUM LTD. (TSX - PWT)
(NYSE - PWE)("PENN WEST")  is pleased to announce that the Board of Directors
has approved its
 capital budget for 2013.



Penn West has a leading position in several emerging and established
 light-oil resource plays as well as numerous other large scale resource
 opportunities. Control of this quality asset base affords Penn West the
 ability to allocate capital to achieve a range of strategic goals. In
 the past several years, Penn West has balanced appraisal of its
 significant resource base with a meaningful dividend. In 2013, Penn
 West plans to remain committed to the dividend model and to improving
 capital efficiencies and production reliability. Over the long-term,
 Penn West remains focused on realizing the significant value inherent
 in our extensive light oil resource base. Consistent with this plan,
 the Board has approved a 2013 Base Capital Budget of  $900 million  with
 the possibility of an additional  $300 million  based on certain
 conditions, as described below.


Capital Budget


Penn West commenced lease preparation and drilling related activity
 through the latter half of the fourth quarter, with ten rigs operating
 by  mid-December 2012, establishing momentum for the 2013 capital
 program.



The focus of the 2013 capital budget is to improve capital efficiencies
 by focusing capital on those projects that, on average, are expected to
 produce flowing barrel efficiencies in the  $35,000 to $40,000  per boe
 per day range while also attaining a minimum 20 percent internal rate
 of return target. We adopted a more balanced pace of drilling, with the
 2013 program peaking at approximately 20 rigs in the first quarter,
 versus 38 rigs in the first quarter of 2012. This strategy is expected
 to result in a more optimal level of activity from a capital efficiency
 perspective. Facilities expansion projects completed in 2011 and 2012
 are expected to accommodate production volume additions in our key
 project areas in 2013.



The 2013 Base Capital Budget is  $900 million  and includes an option to
 layer in up to  $300 million  of incremental capital weighted in the
 second half of the year. This incremental capital is subject to
 commodity price and crude oil differential realizations, demonstrating
 expected capital efficiencies and ongoing strategic portfolio
 management. Penn West will announce in advance, if we plan to spend
 beyond the Base Capital Budget of  $900 million.


Production Forecast


The 2013 Base Capital Budget will be directed predominantly toward light
 oil projects within Penn West's resource assets portfolio. The
 weighting is expected to increase the corporate oil and liquids split
 of current production volumes of approximately 62 percent, post the
 divestments that closed in  December 2012, to a range of approximately
 65 to 68 percent at year end 2013 dependent upon capital spending
 levels. As in prior years, base natural gas production will be allowed
 to decline while the focus of the capital program will be to grow oil
 production. This is a pattern that Penn West has demonstrated
 consistently over the past several years. We are committed to
 continuing improvements in netback realizations through our capital
 rotation from natural gas weighted base assets to our light oil
 weighted core resource assets.  Natural gas opportunities remain in
 inventory until we can see a sustained increase in product prices and
 therefore rates of return.



After accounting for the divestment of approximately 13,000 boe per day,
 production declines associated with limited operational activity in the
 second half of 2012 and lower peak drilling activity planned for the
 first quarter of 2013, the Company forecasts 2013 average annual
 production to be in the range of 135,000 to 145,000 boe per day. The
 2013 Base Capital Budget is expected to maintain average production
 volumes approximately flat to modestly lower relative to year-end 2012
 levels.



One of our overall aims for 2013 is to enhance production reliability of
 our base assets. Planned activities under the 2013 Base Capital Budget
 are focused on optimizing field operations through tighter planning and
 execution in facility turnarounds, and improved field recovery
 processes with particular attention to well, pipeline and small
 facilities repairs. Penn West has several major turnaround programs
 planned in June and July of 2013 that are expected to bring
 approximately 10,000 boe per day of production off-line and impact
 production volumes in the second and third quarters of 2013.


Allocation of 2013 Base Capital


The 2013 Base Capital Budget is planned to be allocated 90 percent
 toward light oil projects. Capital investment will be focused on fewer
 areas and where facilities are in place with the intention of driving
 better capital efficiencies. Planned facilities and well equipping
 capital spending has been significantly reduced in 2013 relative to
 2012 due to the completion of various facilities expansion projects in
 2011 and 2012. Over the past several years, Penn West has allocated
 capital to appraisal and validation of our light oil resources,
 exploration and complementary land acquisitions.  Given our significant
 inventory of over 7,000 light oil and liquids locations, allocation to
 these activities has been limited under the 2013 Base Capital Budget.

 Forecast Capital Allocation Summary                                 
 
(Percent of Capital)                                               
                                             2012*      2013*  
         Drilling and Completions           61         74     
         Facilities and Well Equipping      35         23     
         Land and Exploration               3          1      
         Corporate                          1          2      
 * estimated                                                   


 Forecast Capital Allocation By Play                                       
                                                        Percent of Base    
                                                        Capital Budget     
                     Spearfish                         30                 
                     Slave Point                       14                 
                     Cardium                           13                 
                     North/Peace River Arch            11                 
                     Central                           11                 
                     Viking                            7                  
                     Non-Op/Other                      9                  
                     JV's                              4                  
                     Exploration                       1                  


Divestitures Update  


On  December 19, 2012, Penn West announced the successful completion of
 several divestments for total proceeds of approximately  $1.35 billion.
 Total production associated with the combined divestments was
 approximately 13,000 boe per day. Divested assets were predominantly
 located outside the Company's core operating areas, represented
 inventory that was in the bottom tier from a capital efficiency and
 rate of return perspective, and did not fit with our ongoing strategy.


Financial Management


The proceeds of approximately  $1.35 billion  from recently completed
 divestments have been applied against Penn West's credit facility
 providing improved financial flexibility and put Penn West in a
 stronger financial position. Current indebtedness outstanding on the
 facility is approximately  $800 million  with remaining capacity of
 approximately  $2.2 billion. Balance sheet strength is further enhanced
 by our significant hedging portfolio in both crude oil and natural gas
 for 2013, which provides for greater certainty of cash flows to support
 our capital and the dividend programs. Acquisition and divestitures
 will continue to be an integrated element of Penn West's ongoing
 strategy supporting the continued financial management focus on debt
 reduction.



Penn West currently has commodity hedge contracts in place on 55,000
 barrels per day of crude oil, representing over 80 percent of forecast
 2013 crude oil volumes net of royalties, using collars with an average
 floor price of US  $91.55  per barrel and ceiling of  US$104.42  per
 barrel. On the natural gas side, Penn West has commodity hedge
 contracts in place on 125,000 mcf per day, representing over 45 percent
 of forecast 2013 natural gas volumes net of royalties, at an average
 price of  C$3.34  per mcf.


Organizational Update  


Penn West is pleased to announce several appointments within the
 Company.



Mr.  Dave Middleton  has assumed the role of Executive Vice President,
 Operations Engineering. In this role Dave will have responsibility for
 the direction of all operations activities including: surface land,
 drilling, completions, facilities and supply chain management. Dave has
 served in this capacity on an interim basis since  November 2012. Dave
 has over 32 years of industry experience and has been with Penn West
 for over 13 years, holding a variety of leadership positions. His
 knowledge and experience have helped to focus key planning and
 execution functions in this department. In addition, Dave will carry on
 in his capacity as Managing Director for the Peace River Oil
 Partnership.



Mr.  Mark Fitzgerald, Senior Vice President, Development, has assumed the
 additional responsibility of managing the Acquisition and Divestitures
 ("A&D") function. Mark has broad managerial experience and has served
 in A&D roles in prior employment. Aligning the A&D function with
 Development facilitates an even greater integration between Penn West's
 resource development portfolio and optimal acquisition and divestment
 strategy.



Mr.  Tony Horvat  has been promoted to the position of General Manager,
 Corporate Planning. Tony's strong engineering background and prior
 experience in Penn West's reserves and resources planning function make
 him an outstanding addition to our leadership group.



Mr.  Laurence Broos  has been promoted to the position of Treasurer,
 reporting directly to the Chief Financial Officer, and assumes
 additional financial responsibilities. Laurence has an extensive
 history within Penn West's finance team and a solid background in
 corporate finance.



The evaluation of potential candidates for the role of Chief Operating
 Officer is proceeding as expected. In the interim, Mr.  Murray Nunns,
 President and Chief Executive Officer, continues to carry out the
 duties of Chief Operating Officer.


Conference Call Details


A conference call will be held to discuss Penn West's 2013 Budget at
  9:00am Mountain Time  (11:00am Eastern Time) on  Thursday, January 10,
 2013.



To listen to the conference call, please call 647-427-7450 or
 1-888-231-8191 (North America  toll-free).



This call will be broadcast live on the Internet and may be accessed
 directly on the Penn West website at  www.pennwest.com  or at the following
URL:


http://event.on24.com/r.htm?e=562306&s=1&k=705A1821E86F2C4E9D5E7B4EC24DE191


A digital recording will be available for replay two hours after the
 call's completion, and will remain available until  January 23, 201321:59
Mountain Time  (23:59 Eastern Time). To listen to the replay,
 please dial 416-849-0833 or 1-855-859-2056 (North America  toll-free)
 and enter Conference ID 86592502, followed by the pound (#) key.


Disclaimer


Certain information in this press release is included to provide
 investors with information about our expectations as at  January 9, 2013
 for production and capital expenditures for 2013 and readers are
 cautioned that the information may not be appropriate for any other
 purpose. This information constitutes forward-looking information.
 Readers should note the assumptions, risks and discussion under
 "Forward-Looking Statements" and are cautioned that numerous factors
 could potentially impact our capital expenditure levels and production
 performance for 2013, including any future acquisition and divestiture
 activity.


Oil and Gas Information Advisory


Barrels of oil equivalent ("boe") may be misleading, particularly if
 used in isolation. A boe conversion ratio of six thousand cubic feet of
 natural gas to one barrel of crude oil is based on an energy
 equivalency conversion method primarily applicable at the burner tip
 and does not represent a value equivalency at the wellhead. Given that
 the value ratio based on the current price of crude oil as compared to
 natural gas is significantly different from the energy equivalency
 conversion ratio of 6:1, utilizing a conversion on a 6:1 basis is
 misleading as an indication of value.


Forward-Looking Statements


This news release is primarily comprised of statements as to Penn West's
 internal projections or beliefs relating to future events or future
 performance, including without limitation, Penn West's capital budget
 and production forecast for 2013, which constitute forward-looking
 statements or information (collectively, "forward looking statements")
 within the meaning of the "safe harbour" provisions of applicable
 securities legislation.  Forward-looking statements are typically
 identified by words such as "anticipate", "continue", "estimate",
 "expect", "forecast", "may", "will", "project", "could", "plan",
 "intend", "should", "believe", "outlook", "objective", "aim",
 "potential", "target" and similar words suggesting future events or
 future performance. In addition, statements relating to "reserves" or
 "resources" are deemed to be forward-looking statements as they involve
 the implied assessment, based on certain estimates and assumptions,
 that the reserves and resources described exist in the quantities
 predicted or estimated and can be profitably produced in the future.



In particular, this document contains forward-looking statements
 pertaining to, without limitation, the following: our belief that we
 have a leading position in four of  Canada's  five largest light-oil
 producing regions as well as numerous other large scale resource
 opportunities and our belief that this position affords Penn West the
 ability to allocate capital to achieve a range of strategic goals; our
 plan to remain committed to the dividend model and to improving capital
 efficiencies and production reliability in 2013; our expectation to
 remain focused on realizing the significant value inherent in our
 extensive light oil resource base; our planned 2013 Base Capital Budget
 of  $900 million; the possibility of  $300 million  in additional capital
 spending depending on conditions including commodity price and crude
 oil differential realizations, demonstrating expected capital
 efficiencies and ongoing strategic portfolio management; our forecast
 for 2013 average production to be in the range of 135,000 to 145,000
 boe per day; our belief that the reduction in the amount outstanding
 under Penn West's credit facility will provide improved financial
 flexibility; the focus of our 2013 capital plan on improving capital
 efficiencies by focusing capital on those projects that, on average,
 are expected to produce flowing barrel efficiencies in the  $35,000 to
 $40,000  per boe per day range while also attaining a minimum 20 percent
 internal rate of return; our plans for our 2013 drilling program to
 peak at approximately 20 drilling rigs in the first quarter of 2013;
 our expectation that our 2013 drilling program will result in a more
 optimal level of activity from a capital efficiency perspective; our
 expectation that facilities expansion projects completed in 2011 and
 2012 should accommodate  production volume additions in 2013; our plan
 for 2013 capital spending to be directed predominantly toward light oil
 projects; our expectation for corporate oil and liquids weighting of
 production volumes to increase from approximately 62 percent of
 production in 2012 after the effect of the divestments that closed in
  December 2012  to a range of approximately 65 to 68 percent of
 production at the end of 2013; our plan to remain committed to
 continuing improvements in corporate realizations through our capital
 rotation from natural gas weighted base assets to our light oil
 weighted core resource assets; our expectation for spending under the
 2013 Base Capital Budget to maintain average production volumes
 approximately flat to modestly lower relative to year-end 2012 levels;
 our planned activities under the 2013 Base Capital Budget and expected
 focus on optimizing field operations through tighter planning and
 execution in facility turnarounds, and improved field recovery
 processes with particular attention to well, pipeline and small
 facilities repairs; our plans for major turnaround programs in June and
  July 2013, associated volumes of production expected to be brought
 off-line and expected impact on production volumes in 2013; all details
 relating to our planned allocation of the 2013 Base Capital Budget,
 including amounts anticipated to be spent by capital spending category
 and by play; our belief that our balance sheet strength is enhanced by
 our hedging portfolio in both crude oil  and natural gas for 2013; our
 belief that our hedging portfolio provides greater certainty of cash
 flows to support our capital and dividend programs; and our expectation
 that acquisitions and divestitures will remain an important element of
 Penn West's 2013 and ongoing strategy.



With respect to forward-looking statements contained in this document,
 we have made assumptions regarding, among other things: future crude
 oil, natural gas liquids and natural gas prices and differentials
 between light, medium and heavy oil prices and Canadian, WTI and world
 oil prices; future capital expenditure levels; future crude oil,
 natural gas liquids and natural gas production levels; drilling
 results; future exchange rates and interest rates; the amount of future
 cash dividends that we intend to pay and the level of participation in
 our dividend reinvestment plan; our ability to obtain equipment in a
 timely manner to carry out development activities and the costs
 thereof; our ability to market our oil and natural gas successfully to
 current and new customers; the impact of increasing competition; our
 ability to obtain financing on acceptable terms; our ability to access
 the remaining capacity on our credit facility; and our ability to add
 production and reserves through our development and exploitation
 activities. In addition, many of the forward-looking statements
 contained in this document are located proximate to assumptions that
 are specific to those forward-looking statements, and such assumptions
 should be taken into account when reading such forward-looking
 statements.  In particular, it should be noted that our current
 guidance for our forecast average production levels and the planned
 allocation of capital spending for 2013 assume the 2013 Base Capital
 Budget of  $900 million  and do not reflect the possible additional  $300
 million  in capital spending that might be implemented if determined
 appropriate - any such additional capital spending could have a
 material impact on our guidance. 



Although we believe that the expectations reflected in the
 forward-looking statements contained in this document, and the
 assumptions on which such forward-looking statements are made, are
 reasonable, there can be no assurance that such expectations will prove
 to be correct. Readers are cautioned not to place undue reliance on
 forward-looking statements included in this document, as there can be
 no assurance that the plans, intentions or expectations upon which the
 forward-looking statements are based will occur. By their nature,
 forward-looking statements involve numerous assumptions, known and
 unknown risks and uncertainties that contribute to the possibility that
 the predictions, forecasts, projections and other forward-looking
 statements will not occur, which may cause our actual performance and
 financial results in future periods to differ materially from any
 estimates or projections of future performance or results expressed or
 implied by such forward-looking statements. These risks and
 uncertainties include, among other things: the possibility that our
 2013 capital expenditure levels and / or production levels will be
 materially lower or higher than currently forecast and that our
 operational and financial performance and the market value of our
 securities is adversely affected thereby; the impact of weather
 conditions on seasonal demand and ability to execute capital programs;
 risks inherent in oil and natural gas operations; uncertainties
 associated with estimating reserves and resources; competition for,
 among other things, capital, acquisitions of reserves, resources,
 undeveloped lands and skilled personnel; incorrect assessments of the
 value of acquisitions; geological, technical, drilling and processing
 problems; general economic conditions in  Canada, the U.S. and globally;
 industry conditions, including fluctuations in the prices of oil and
 natural gas; royalties payable in respect of our oil and natural gas
 production and changes thereto; changes in government regulation of the
 oil and natural gas industry, including environmental regulation;
 fluctuations in foreign exchange or interest rates; unanticipated
 operating events or environmental events that can reduce production or
 cause production to be shut-in or delayed, including wild fires and
 flooding; failure to obtain industry partner and other third-party
 consents and approvals when required; stock market volatility and
 market valuations; OPEC's ability to control production and balance
 global supply and demand of crude oil at desired price levels;
 political uncertainty, including the risks of hostilities, in the
 petroleum producing regions of the world; the need to obtain required
 approvals from regulatory authorities from time to time; failure to
 realize the anticipated benefits of dispositions, acquisitions, joint
 ventures and partnerships; changes in tax and other laws that affect us
 and our securityholders; changes in government royalty frameworks; the
 potential failure of counterparties to honour their contractual
 obligations; and the other factors described in our public filings
 (including our most recent Annual Information Form) available in  Canada
 at  www.sedar.com  and in  the United States  at  www.sec.gov. Readers are
 cautioned that this list of risk factors should not be construed as
 exhaustive.



The forward-looking statements contained in this document speak only as
 of the date of this document. Except as expressly required by
 applicable securities laws, we do not undertake any obligation to
 publicly update or revise any forward-looking statements, whether as a
 result of new information, future events or otherwise. The
 forward-looking statements contained in this document are expressly
 qualified by this cautionary statement.



Penn West shares are listed on the Toronto Stock Exchange under the
 symbol PWT and on the New York Stock Exchange under the symbol PWE. 


SOURCE  Penn West Exploration

PENN WEST EXPLORATION

Penn West Plaza

Suite 200, 207 - 9

th

Avenue SW

Calgary, Alberta  T2P 1K3

Phone: 403-777-2500

Fax: 403-777-2699

Toll Free: 1-866-693-2707

Website:

www.pennwest.com

Investor Relations:

Toll Free: 1-888-770-2633

E-mail:

investor_relations@pennwest.com

Murray Nunns, President & Chief Executive Officer

Phone:  403-218-8939

E-mail:

murray.nunns@pennwest.com

Clayton Paradis, Manager, Investor Relations

Phone:  403-539-6343

E-mail:

clayton.paradis@pennwest.com
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