Corporate Presentation 2015-09-11

Corporate PresentationSeptember 2015

2pennwest.com | TSX: PWT NYSE: PWE

Important Notices to the Readers

This presentation should be read in conjunction with the Company's unaudited consolidated financial statements and management's discussion and analysis ("MD&A") for the three and six months ended June 30, 2015. All dollar amounts contained in this presentation are expressed in millions of Canadian dollars unless otherwise indicated.

Certain financial measures included in this presentation do not have a standardized meaning prescribed by International Financial Reporting Standards (“IFRS”) and therefore are considered non-generally accepted accounting practice ("non-GAAP") measures; accordingly, they may not be comparable to similar measures provided by other issuers. This presentation also contains oil and gas disclosures, various industry terms, and forward-looking statements, including various assumptions on which such forward-looking statements are based and related risk factors. Please see the Company's disclosures located in the Appendix at the end of this presentation for further details regarding these matters.


Corporate Profile

Production (Q2/15) 91,164 boe/d

% Liquids 69%

Netback (Q2/15) $18.72/boe

EBITDA (trailing 12 months) $661 MM

1P Reserves (YE 2014) 368 MMboe

2P Reserves (YE 2014) 561 MMboe

2P Reserve Life Index (2014) 15 Years

Market Capitalization ($0.84/sh as at Sept 1) $422 MM

Net Debt (Q2/15) $2,205 MM

Enterprise Value $2,627 MM

Senior Debt to EBITDA 3.2 times

Ope

ratio

nsA

sset

Bas

eC

apita

lizat

ion


Actions Taken to Live Within our Means

2016 capital program will be Free Cash Flow neutral

Ramping down H2 2015 activity

Limit capital expenditures to funds flow from operations

Significantly reducing our current cost structure

Suspend our dividend

$45 million annual cash savings 35% reduction in staff Board voluntarily reduced retainers

$20 million annual cash savings Effective following October 2015 payment


Limiting Capex to Funds Flow from Operations

Capex Incl.

Enviro

Capex Incl.

Enviro

Capex Incl.

EnviroFFO FFO FFO

2013 2014 Potential 2015E Potential 2016E

~$215MMSurplus ~$150MM

Surplus

Going forward, we plan to limit our Total Capital Expenditures to Funds Flow from Operations

@ US$98 WTI @ US$93 WTI @ US$50 WTI

See “Endnotes”


Driving Down Capital Costs

Dodsland Viking Drill CostPembina Cardium Drill Cost

Pembina Cardium H1 2015 cost per

meter drilled down ~$200/m from 2013

Dodsland Viking H1 2015 cost per

meter drilled down ~$30/m from 2013

Expect up to a 10% further reduction in individual well drilling, completion, equip, and tie-in costs as well as associated facilities relative to where we are today

$250

$350

$450

$550

2013 2014 2015 H1

Cos

t per

Met

er D

rille

d ($

/m)

$180

$190

$200

$210

$220

$230

2013 2014 2015 H1

Cos

t per

Met

er D

rille

d ($

/m)


Driving Down Operating Costs

Absolute operating costs at ourexisting properties reduced over 20%

excluding the impact of divestitures

Expect further5 – 10% operating

cost savings in 2016

$500

$600

$700

$800

2013 2014 2015E 2016E

Ope

ratin

g C

osts

($M

M)

See “Endnotes”


Current Hedge Position Targeting to hedge 25% - 40% of net oil volumes and 40% - 50% of net gas volumes ~$75MM current mark to market value on senior note FX contracts

Oil Hedge Position: Volumes & Price Gas Hedge Position: Volumes & Price

12,500 12,500

9,500

6,000

5,000 5,000

WTIC$70

WTIC$73

WTIC$73

WTIC$72

WTIC$72

WTIC$72

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Q3 Q4 Q1 Q2 Q3 Q4

2015 2016

Ave

rage

Oil

Volu

mes

Hed

ged

(bbl

/d)

70 70

19 19 19 19

AECOC$2.86

AECOC$2.86

AECOC$3.08

AECOC$3.08

AECOC$3.08

AECOC$3.08

0

15

30

45

60

75

Q3 Q4 Q1 Q2 Q3 Q4

2015 2016

Ave

rage

Gas

Vol

umes

Hed

ged

(MM

cf/d

)

See “Endnotes”


Core Areas Remain Profitable

Slave Point

Viking

Cardium

Slave PointProduction 6,000 boe/d

Liquids 97%Opex $20.00/boeNOI $50MMNetback $25.00/boe

Total Core AssetsProduction 54,000 boe/d


100 kms65 miles

95 kms60 miles

150 kms95 miles

125 kms80 miles

135 kms85 miles

205 kms130 miles

CardiumProduction 29,500 boe/d


VikingProduction 18,500 boe/d


See “Endnotes”


Production boe/d 18,500

Base Decline % 8 - 12

Locations # ~1,500

Land sections ~1,000

1P Reserves MMboe 56


2P RLI (H1 2015) years 11

0

500

1,000

1,500

2015 Spuds Gross Booked Locations Potential Inventory

Viking Play Details

Viking Overview

Viking Upside

AB SK

Dodsland

A L B E R T A S A S K A T C H E W A N

Penn West landPW 2015 wellPW 2014 wellR22W3

T30

2 miles

4 kms

See “Endnotes”


Production boe/d 29,500

Base Decline % 16 - 20

Locations # ~2,500

Land sections ~1,100



2P RLI (H1 2015) years 20

0

1,000

2,000

3,000

2015 Spuds Gross Booked Locations Potential Inventory

Cardium Overview

Cardium Play Details

Cardium Upside

T50

10 miles

15 kms

J Lease

Crimson Lake

Pembina

WillesdenGreen

T45

T40

R5

PCU #11

PCU #9

Easyford

Faraway

Penn West landPW 2015 wellPW 2014 wellUnit boundary

Lodgepole

R10R15W5

T54

See “Endnotes”


Investment Economics Remain Supportive

Viking Play Well Economics (Dodsland)

$0.3

$0.9

$1.5

$2.1

C$50/bbl C$60/bbl C$70/bbl C$80/bbl

US$42/bbl US$50/bbl US$58/bbl US$66/bbl

NPV ($MM)

16%

30%

46%

66%



IRR (%)

0.1x

0.4x

0.6x

0.9x



PIR (x)

Cardium Play Well Economics (Pembina)

See “Endnotes”

$223

$490

$757

$1,015



NPV ($K)

26%

47%

70%

97%



IRR (%)

0.25x

0.55x

0.85x

1.14x



PIR (x)


Non-Core Areas: Upside Potential with Stable Base

EastCentral

AB

NE B.C. & NW AB

Mitsue

SwanHills

Weyburn

PROP

H1 2015 Operational Summary

See “Endnotes”

Production Liquidsboe/d %

Mitsue 4,500 78% Weyburn 2,500 100% Swan Hills 8,000 76% NE BC & NW AB 8,000 8% East Central AB 7,000 41% PROP 3,000 97% Other 1,000 55% Total Non-Core 34,000 56%


Continue to Transact on Non-Core Assets

$3,402

$338 $2,205

($493)

($212)

($348)

($412)($70)

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

Q2 2013Net Debt

H2 2013Dispositions

H1 2014Dispositions

H2 2014Dispositions

H1 2015Dispositions

FX Losses Other Q2 2015Net Debt

Net

Deb

t ($M

M)

Total production sold of ~30,000 boe/d implies aggregate transaction metric

of ~$50,000/boe/d

~$3.4BQ2 2013 Net Debt

~$1.5B of dispositions over the last 24 months ~$2.2B

Q2 2015 Net Debt

See “Endnotes”

Appendix


Endnotes

Slide 5

Historical data excludes dividend for a better comparison of Penn West’s dividend policy after the payment to be made on October 15, 2015. Potential 2015E Capex based on capital budget as per guidance and internal estimate for Enviro. Potential 2015E FFO estimated range based on high/low ranges of production, Opex and G&A Cost inputs from guidance run on the internal forecasting model.

Slide 7

Opex is calculated only for properties that Penn West currently owns and this excludes the impact of acquisitions and divestments. 2015 operating cost estimate based on mid-point of guidance adjusted for costs incurred on properties that were sold.

Slide 85,000 bbl/d of US$ contracts in Q3 2015 illustratively converted to C$ at a rate of C$/US$ 1.30.

Slide 9Production, Liquids %, Opex, and Netback metrics based on operating leases for the first six months of 2015 with play boundaries defined as per internal standards. NOI is annualized based on the first six months of 2015.

Slides 10,11Play boundaries defined as per internal standards. Production based on operating leases for the first six months of 2015. Number of locations based on internally identified inventory. Reserves, RLI, and gross booked locations based on the year-end 2014 reserve evaluation performed by the external reserve evaluator.

Slide 12Economic metrics based on internal economic assumptions of revenues, costs, and well performance.

Slide 13Production and Liquids % based on operating leases for the first six months of 2015 with play boundaries defined as per internal standards.

Slide 14FX Losses is the impact of changes in foreign exchange rates on Senior Notes outstanding.


Definitions and Industry TermsA&D means oil and natural gas property acquisitions and divestitures.

bbl means barrel or barrels.

boe and boe/d mean barrels of oil equivalent and barrels of oil equivalent per day, respectively.

Capex means Total Capital as defined below.

Development Capital includes all direct costs related to our operated and non-operated development programs including drilling, completions, tie-in, development of and expansions to existing facilities and major infrastructure, optimization and EOR activities.

EBITDA is calculated in accordance with Penn West’s lending agreements wherein unrealized risk management gains and losses and impairment provisions are excluded.

Enviro means decommissioning expenditures.

EOR means Enhanced Oil Recovery.

FX means foreign exchange rate, in our case typically refers to C$ to US$ exchange rates.

FFO means Funds Flow from Operations.

Free Cash Flow (FCF) means Funds Flow from Operations less Total Capital less Enviro less dividends paid.

G&A means general and administrative expenses.

IRR means Internal Rate of Return which is the interest rate at which the NPV equals zero

Liquids % means the percentage of crude oil and NGLs from the total barrels of oil equivalent of production.

Mcf means thousand cubic feet.

MMboe means million barrels of oil equivalent.

MM means millions.

NPV means Net Present Value which is the sum of the present values of income and outgoing cash flows over a period of time

K means thousands.

Net Debt means Senior Debt plus Bank Debt plus non-cash working capital deficit.

NGL means natural gas liquids which includes hydrocarbon not marketed as natural gas (methane) or various classes of oil.

Opex means operating costs.

NOI refers to Net Operating Income which means revenue net or royalties less operating costs.

PIR refers to the Profit Investment Ratio which is the NPV divided by the initial investment.

RLI refers to Reserve Life Index which measures the number of years it will take to deplete reserves at the current pace of production.

Total Capital includes all direct costs related to our operated and non-operated development and base programs including drilling, completions, tie-in, facilities and major infrastructure capital, optimization, EOR, corporate and other capital.


Non-GAAP Measures AdvisoryNon-GAAP Measures Advisory

In this presentation, we refer to certain financial measures that are not determined in accordance with IFRS. These measures as presented do not have any standardized meaning prescribed by IFRS and therefore they may not be comparable with calculations of similar measures for other companies. We believe that, in conjunction with results presented in accordance with IFRS, these measures assist in providing a more complete understanding of certain aspects of our results of operations and financial performance. You are cautioned, however, that these measures should not be construed as an alternative to measures determined in accordance with IFRS as an indication of our performance. These measures include the following:

Funds Flow is cash flow from operating activities before changes in non-cash working capital and decommissioning expenditures. Funds flow is used to assess our ability to fund dividends and planned capital programs. For additional information relating to funds flow, including a reconciliation of our funds flow to our cash flow from operating activities, see our latest management's discussion and analysis which is available in Canada at www.sedar.com and in the United States at www.sec.gov;

Funds Flow From Operations excludes the effects of financing related transactions from foreign exchange contracts and debt repayments/ pre-payments and is more representative of cash related to continuing operations. For additional information relating to funds flow from operations, including a reconciliation of our funds flow from operations to our funds flow, see our latest MD&A which is available in Canada at www.sedar.com and in the United States at www.sec.gov

Netback is a measure of cash operating margin on an absolute or per-unit-of-production basis and is calculated as the absolute or per-unit-of-production amount of revenue less royalties, operating costs and transportation. The measure is used to assess the operational profitability of the company as well as relative profitability of individual assets. For additional information relating to netbacks, including a detailed calculation of our netbacks, see our latest management's discussion and analysis which is available in Canada at www.sedar.com and in the United States at www.sec.gov;

Net debt is the amount of long-term debt, comprised of long-term notes and bank debt, plus net working capital (surplus)/deficit. Net debt is a measure of leverage and liquidity.

Net working capital (surplus)/deficit is accounts payable and accrued liabilities plus dividends payable less the sum of accounts receivable and other current assets. We use this as a measure of net cash obligations to be settled in the near-term under the course of normal business operations.


Forward-Looking Information AdvisoryCertain statements contained in this presentation 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", "budget", "may", "will", "project", "could", "plan", "intend", "should", "believe", "outlook", "objective", "aim", "potential", "target", "pursue" 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 presentation contains, without limitation, forward-looking statements pertaining to the following: (a) under "Actions Taken to Live Within Our Means": that capital expenditures will be limited to Fund Flow from Operations; that the 2016 capital program will be Free Cash Flow neutral; that H2 2015 activity will be reduced; that the dividend suspension will realize $20 million in annual cash savings; that the current cost reductions will realize $45 million in annual cash savings; and the anticipated 35% reduction in staff and reduced Board retainers; (b) under "Limiting Capex to Funds Flow from Operations": our plan to limit our future total capital expenditures to Funds Flow from Operations and the annualized FFO and Capex including Enviro for 2015; (c) under "Driving Down Capital Costs": the expected cost per meter drilled in 2016 for both the Pembina Cardium and Dodland Viking areas; and the expectation of up to a 10% further reduction in individual well drilling, completion, equip, and tie-in costs as well as associated facilities relative to current levels; (d) under "Driving Down Operation Costs": the 2015 H1 annualized operating costs and the expectation for a further 5% - 10% operating cost savings in 2016; (e) under the "Current Hedge Position": our intent to hedge 25% - 40% of net oil volumes and 40% - 50% of net gas volumes; (f) under “Core Areas Remain Profitable”: the annualized NOIs in each of the respective core asset areas; (g) under “Viking Overview”: the long term plan inventory identified and potential; and (h) under “Cardium Overview”: the long term plan inventory identified and potential.

With respect to forward-looking statements contained in this presentation, we have made assumptions regarding, among other things: that we do not dispose of any material producing properties or royalties or other interests therein; the economic returns that we anticipate realizing from expenditures made on our assets; 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 and natural gas prices; future capital expenditure levels; future crude oil, natural gas liquids and natural gas production levels; future exchange rates and interest rates; future taxes and royalties; future debt levels; the continued suspension of our dividend and our dividend reinvestment plan; our ability to execute our capital programs as planned without significant adverse impacts from various factors beyond our control, including weather, infrastructure access and delays in obtaining regulatory approvals and third party consents; 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; and our ability to add production and reserves through our development and exploitation activities.

Although we believe that the expectations reflected in the forward-looking statements contained in this presentation, 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 presentation, 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 forward-looking statements contained herein will not be correct, 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 we will be unable to complete all or some of our planned non-core asset dispositions; the possibility that we will not be able to realize anticipated costs savings as a result our workforce reduction and other initiatives; the impact of weather conditions on seasonal demand; the risk that we will be unable to execute our capital programs as planned without significant adverse impacts from various factors beyond our control, including weather, infrastructure access and delays in obtaining regulatory approvals and third party consents; the possibility that we breach one or more of the financial covenants pursuant to our amending agreements with the syndicated banks and the holders of our senior notes; 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 or dispositions; geological, technical, drilling and processing problems; general economic and political conditions in Canada, the U.S. and globally; industry conditions, including fluctuations in the price of oil and natural gas, price differentials for crude oil and natural gas produced in Canada as compared to other markets, and transportation restrictions, including pipeline and railway capacity constraints; royalties payable in respect of our oil and natural gas production and changes to government royalty frameworks; 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 extreme cold during winter months, wildfires and flooding; failure to obtain regulatory, industry partner and other third-party consents and approvals when required, including for acquisitions, dispositions and mergers; failure to realize the anticipated benefits of dispositions, acquisitions, joint ventures and partnerships, including those discussed herein; changes in tax and other laws that affect us and our securityholders; the potential failure of counterparties to honour their contractual obligations; stock market volatility and market valuations; the global supply and demand of crude oil; political uncertainty, including the risks of hostilities, in the petroleum producing regions of the world; and the other factors described in our public filings (including our 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 presentation speak only as of the date of this presentation. Except as expressly required by applicable securities laws, we do not undertake any obligation to publicly update any forward-looking statements. The forward-looking statements contained in this presentation are expressly qualified by this cautionary statement.

STOCK EXCHANGEToronto: PWTNew York: PWE

INDEPENDENT RESERVES EVALUATORSproule Associates Limited

TRANSFER AGENTCST Trust CompanyToll Free: 1-800-387-0825Email: [email protected]: www.canstockta.com

INVESTOR RELATIONSToll Free: 1-888-770-2633Email: [email protected]: www.pennwest.com

PENN WESTSuite 200, Penn West Plaza207 – 9th Avenue SWCalgary, Alberta, Canada T2P 1K3Telephone: (403) 777-2707Toll Free: 1-866-693-2707Facsimile: (403) 777-2699Website: www.pennwest.com

Corporate Presentation 2015-09-11

Documents

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readersthis presentation

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