Penn West Petroleum Ltd (USA) (PWE), Encana Corporation (USA) (ECA): A Cheap Canadian E&P Company for Your Portfolio

Page 1 of 2

Since the first quarter of 2011, Penn West Petroleum Ltd (USA) (NYSE:PWE) has experienced a significant decline from more than $28.50 per share in March 2011 to only $10.80 per share at the time of writing. In the first quarter of 2013, several famous investors including Jean-Marie Eveillard, Steven Cohen, Jim Simons, and Chuck Royce either added or initiated long positions in the company. Jean-Marie Eveillard owns nearly 36.5 million shares, accounting for a 7.5% stake in the company. Let’s take a closer look to determine how attractive is this company as an investment.

Penn West Petroleum Ltd (USA) (NYSE:PWE)

Good asset potential with ongoing business restructuring

Penn West Petroleum Ltd (USA) (NYSE:PWE) is a Canadian exploration and production company, having around 5.7 million net acres of land, with 445 million BOE in its total proved reserves and about 676 million BOE in proved and probable (2P) reserves. In 2012, the company replaced as much as 190% of the year’s production and grew its 2P reserve by 7%. The company calculated that its NPV of reserves stayed around $9.1 billion.

Penn West Petroleum Ltd (USA) (NYSE:PWE)’s near-term strategy is worth watching as it looks to divest around $1 billion to $1.5 billion of its non-core assets. For the full year 2013, the company plans to have a base capital spending of $900 million and a conditional additional capital of $300 million. With that investment amount, Penn West Petroleum Ltd (USA) (NYSE:PWE) estimates to produce around 135 to 145 mboe per day (64% liquid) with the project IRR threshold minimum of 20%.

Moreover, under the new management, Penn West Petroleum Ltd (USA) (NYSE:PWE) has been trying very hard to slash its costs and improve operational efficiency. The market values Penn West Petroleum Ltd (USA) (NYSE:PWE) at 5.3 times its trailing EBITDA (earnings before interest, taxes, depreciation, and amortization), and only 60% of its book value. Moreover, investors could get a juicy dividend yield of around 5.1%.

Has the lowest price-to-book ratio compared to its peers

Compared to its peers Encana Corporation (USA) (NYSE:ECA) and Suncor Energy Inc. (USA) (NYSE:SU), Penn West has the lowest price-to-book value ratio among the three companies. The market values Encana Corporation (USA) (NYSE:ECA) at 11.5 times its trailing EBITDA and as high as 2.67 times its book value. Encana Corporation (USA) (NYSE:ECA) has around 10.9 million net acres of land with total proved reserves of 13.1 tcfe (or around 2.15 billion BOE). This year, Encana Corporation (USA) (NYSE:ECA) also intends to divest as much as $500 million to $1 billion of assets to fund the operation of its most profitable assets.

Encana Corporation (USA) (NYSE:ECA) has a weaker balance sheet than Penn West. As of March 2013, it had $4.7 billion in equity, nearly $2.88 billion in cash, and nearly $7.66 billion in both long and short-term debt. Encana Corporation (USA) (NYSE:ECA) plans to pay its 2013 debt maturity of $500 million with cash. The company has also committed to pay the dividend. At its current trading price, its forward annual dividend yield is also quite high at 4.7%.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!