Penn West: The Dividend Needs To Go

I have been bearish Penn West (NYSE: PWE) for quite some time now. The company has been chronically mismanaged, plagued by blunder after blunder, including accounting irregularities and concerns regarding its strategic direction. Penn West attempted to remedy some of these problems last year by bringing in David Roberts, former COO of Marathon Petroleum (NYSE: MRO) as its new CEO, and by announcing a major turnaround plan.However, Penn West's current share price has little to do with these prior events. Instead, Penn West has fallen along with other E&P names due to much lower oil prices:PWE data by YChartsAs shown, Penn West has seen its stock fall 70% in recent weeks, now trading at below $3 per share and now sporting a near 17% dividend yield. In my opinion, Penn West needs to take some drastic action or face a prolonged downtrend.The dividend needs to goPenn West made a strategic move towards more light oil production in late 2013. In short, Penn West was going to deploy capital almost exclusively in its higher margin Cardium, Slave Point, and Viking fields, and away from more fringe production. As I have noted in several prior articles, this move was necessary as its previous capital spending focus was scattered and resulting in some of the highest operating expenses in the Canadian E&P industry.However, oil prices have fallen 40% since these plans were made. According to a very insightful article from fellow SA author Michael Blair, Penn West is likely to see its... Read more

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