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Strategies & Market Trends : Value Investing

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To: Spekulatius who wrote (38723)	8/31/2010 4:38:32 PM
From: E_K_S	Read Replies (2) of 78464

According to this article PWE can possibly double their reserves from their current 687 million BOE of proved reserves... Penn West Energy – Surprising Production and Reserve Growth On The Horizon gurufocus.com From the article:"...What is particularly appealing here is that this is a very low risk opportunity. Penn West has long been viewed as an unexciting company with great assets that developed them slowly producing a steady stream of cash flow. Now, what is emerging is a company that in addition to being a low risk producer is also a company with very exciting growth prospects. Consider - Existing reserves of 687 million BOE - Believe that these can be doubled through in-fill drilling just on existing fields - Are now developing a large oil sands project that could add hundreds of millions of additional barrels of reserves - Also have a large shale gas play at Cordova that had been moved forward by years Currently the NAV of Penn West as calculated by various analysts is around $22 per share. The current share price is $20. So you are essentially paying a fair price for the existing reserves for a company that appears capable of easily doubling those reserves in the coming years. If the growth doesn’t materialize you aren’t going to lose much. If the growth does occur (and there is no reason to think that it won’t) this is going to be a big winner. And if you believe in higher oil prices going forward then this opportunity looks even better...." ==================================================================== It's possible that the analysts have under estimated the potential growth in reserves looking forward. In his presentation last week CEO Nunns compared their Pembina Cardium Field in Western Canada with the Permian Basin in Texas. In Canada typical well spacing has been 80 acres while in Texas it is 5 acres. The result is that while in the Cardium the recovery factor has been about 13%, it has been more like 32% in the Permian Basin. In other words there is a lot more oil in the Pembina (Penn West’s property) that can be recovered. The company can be more efficient in their current drilling practice. Their NAV is estimated at $22.00/share and when they begin their "in-fill drilling" program on their Pembina Cardium Field their NAV could be calculated to be 20% higher. PWE and ERF continue to be in my top ten holdings. EKS

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