Canadian Manufacturing

Penn West Petroleum warns of pending defaults

The company raised the red flag in its first-quarter financial report, which showed a 39 per cent decline in funds flow from operations



CALGARY—Penn West Petroleum Ltd. says it could be in default of its lending agreements by the end of June if low commodity prices continue, but it’s taking steps to reduce that risk.

The Calgary-based company says it was in compliance with all its debt covenants as of the end of the first quarter, but the risk of default has created uncertainty about Penn West’s ability to continue as a going concern.

It raised the red flag Monday in its first-quarter financial report, which showed a reduced net loss, but also a 39 per cent decline in funds flow from operations—which dropped to $47 million from $77 million in the same quarter last year.

The net loss was reduced to $100 million or 20 cents per share from $248 million or 49 cents per share a year ago _ mostly because of an $89 million non-cash foreign exchange gain due to the strengthening of the Canadian dollar versus the U.S. dollar.

Revenue was down 32 per cent, dropping to $231 million from $340 million, due to a combination of lower output and lower prices for oil, gas and natural gas liquids.

Penn West says it’s in negotiations with lenders to amend the terms of their agreements to reduce the risk of default. It’s also considering other options, including getting additional capital from strategic investors.

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