(Adds details, investor comment, threat of legal action;
By Scott Haggett
CALGARY, July 30 Penn West Petroleum Ltd
said it has uncovered accounting irregularities
that misclassified nearly C$300 million ($275.05 million)in
expenses over the last four years, and the Canadian oil producer
will restate its results.
Investors reacted with dismay, sending its shares down 18
percent on Wednesday, while several U.S. law firms said they
would assess if there had been violations of securities laws on
behalf of Penn West's investors and lawsuits could follow.
Penn West, listed in Toronto and New York, said that a
preliminary review of its accounting practices carried out by
Chief Financial Office David Dyck, who was appointed May 1,
found that C$70 million of operating expenses were classified as
capital expenditures in fiscal 2013.
It also found C$111 million of expenses that were listed as
capital expenditures in fiscal 2012 while C$100 million of
operating expenses were listed as royalty expenses in each of
the 2012 and 2013 fiscal years.
The company said it has notified regulators of the
irregularities and will restate its financial statements for
2012 and 2013 as well as for the first quarter of this year.
Penn West is in the midst of a restructuring after years of
underperforming rivals. Since George, the former chief executive
of Suncor Energy Inc, took control of the board last
year, the conventional oil producer replaced its chief
executive, appointing David Roberts, the former chief operating
officer of Marathon Oil Corp. It has also let go senior
managers and sold assets to help bring costs under control.
"We think the assets are good ... but unfortunately there
continue to be some skeletons in the closet from the previous
management team." said Ryan Bushell, an asset manager at Leon
Frazer & Associates, which holds about 3 million Penn West
Penn West shares fell 18 percent, or C$1.74, to C$8.20 on
the Toronto Stock Exchange. The stock is down 8.1 percent since
January 2013, while the TSE's energy index is up 28 percent over
the same period. In New York, the stock fell 17 percent to
Morningstar analyst Robert Bellinski criticized Penn West's
accounting methods in an October 2013 report, specifically on
the amount of goodwill Penn West carried on its books.
"It doesn't come as a surprise to me," Bellinski said on
Tuesday's release. "I've been calling them out on their
accounting since last year."
The Alberta Securities Commission and U.S. Securities and
Exchange Commission both declined comment. Penn West auditors
KPMG also declined comment.
Penn West said it was examining its documents going back four
years and that, as a result, it might not be in compliance with
certain debt covenants. It has started discussions with its
lenders about the potential impact.
Penn West also released preliminary production data for the
second quarter late on Tuesday, pegging output for the period at
108,130 barrels of oil equivalent per day. While higher than
many analysts expected, Penn West's ratings were still cut in
response to the accounting issues.
RBC Capital Markets cut its price target to C$10 from C$12
while TD Securities chopped its target to C$9.50 from C$11.50.
The accounting review does not affect previously disclosed
cash and debt balances or the company's 2014 production
guidance, Penn West said.
($1 = 1.0907 Canadian Dollars)
(Additional reporting by Cameron French in Toronto; Editing by
Lisa Von Ahn and Gunna Dickson)