Penn West Petroleum will limit its capital expenditures to funds flow from operations by year-end 2015, suspend dividend and reduce board compensation, and significantly reduce its cost structure through a 35% workforce reduction.
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"We continue to take concrete steps to strengthen our balance sheet," said Dave Roberts, president and CEO of Penn West, "Limiting our capital programs to the funds flow generated from our assets and suspending our dividend are necessary steps.
"Building on a combination of process and efficiency improvements over the past 12 to 18 months, we are taking further actions today to significantly reduce our cost structure without impacting our ability to execute. We remain flexible and well positioned to move forward when oil prices improve."
Going forward, total capital expenditures will remain within our funds flow from operations. Over the last month, the company identified $75 million of planned 2015 capital activity that will be deferred, which is incremental to the $50 million capital spending reduction announced as part of our second quarter results.
This $500 million revised capital budget represents a 40% reduction from the original November 2014 guidance of $840 million. The company will continue to look for additional opportunities to further reduce our 2015 capital expenditures.
The company has a significant inventory of wells already drilled and awaiting either completion or tie-in where there is a strong economic case for completing the work. While it finish these wells, it anticipates being above its target activity levels which we will reach near the end of the year.
In finalizing plans for its 2016 capital program, the company will limit our capital expenditures to estimated funds flow from operations on a full year basis.
The company focus our development capital on our core Viking and Cardium light oil properties in 2016. These light oil plays continue to offer attractive rates of return with short payback periods even at current commodity price levels and existing cost structur
Development will be directed towards primary exploitation in order to reduce payback periods.
Penn West Petroleum board of directors has decided to suspend dividend until further notice following the payment on October 15, 2015 of the most recently declared dividend.
Penn West Petroleum estimates this action will reduce annual cash outlays by approximately $20 million. The $0.01 per share dividend declared by its board on July 30, 2015 will still be paid on October 15, 2015 to shareholders of record at the close of business on September 30, 2015.
In addition, the board has voluntarily decreased the annual retainers payable to non-management directors. In particular, the annual retainer payable to the board chair will be reduced by 50%, while the annual retainers payable to the remaining non-management directors will be reduced by 40%.
Penn West Petroleum will reduce its total workforce by 35%, representing over 400 full time employees and contractors, with most of this reduction being effective immediately. The remainder of this workforce reduction is expected to be completed by the end of the year.
Most of the employees and contractors leaving are located in its head office in Calgary. The total cost savings associated with this workforce reduction are expected to be approximately $45 million per year. ■
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