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Penn West Pins ’03 Capital Budget on Exploration, Development
Staking its future growth on building natural gas reserves, Calgary-based Penn West Petroleum Ltd. has unveiled a record exploration and development program for 2003 to reflect a strong inventory of Canadian prospects and a “favorable” commodity price outlook for the year.
The independent’s initial capital expenditure budget for 2003 ranges between C$550-$650 million. Of that amount, about C$490 million will be allocated to exploration and development activities, with the balance allocated to property acquisitions. However, Penn West said that it is possible that “additional acquisitions or drilling opportunities” could up the budget as the year progresses.
Exploration and development plans include an aggressive drilling program in the first quarter, focusing on natural gas growth in its northern core area of the Western Canadian Sedimentary Basin. Penn West plans to drill approximately 500 net wells in 2003, with production estimated to average 104,000-109,000 boe/d. These production targets provide for only a modest level of acquisition spending in the range of $60 to $160 million, less than the average actual spending of C$227 million over the past three years.
Penn West’s production mix for 2003 will continue to be weighted toward natural gas. For budgeting purposes, commodity prices for 2003 have been assumed to average US$24.00/bbl WTI and C$4.90/Mcf at the plant gate. Penn West has a moderate hedging program in place that covers 17,500 bbl/d through the first half of 2003 at an average floor of US$22.90/bbl and an average ceiling of US$27.90/bbl. The company also has hedged 100 MMcf/d for the first quarter at an average plant gate floor price of C$4.40/Mcf and an average ceiling price of US$7.40/Mcf.
Cash flow this year will range between C$520-$570 million after forecasted cash taxes of C$60-$90 million, equating to C$9.60-$10.50 basic per share, the company said. Most of Penn West’s capital expenditures will be funded from internally generated cash flow under these assumptions. Net income is expected to be C$180-$200 million, or C$3.30-$3.70 basic per share.
Penn West expects to maintain a strong balance sheet throughout the year, with year-end debt to annual cash flow at a ratio of 1.1-1. Penn West has appointed KPMG LLP to act as its auditor until the next annual meeting of shareholders, replacing former auditor Arthur Andersen LLP.
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