Penn West Posts Big Numbers on Hedging Gains (PWE)

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Penn West Energy Trust (NYSE:PWE) this morning reported third quarter revenues of $1.235 billion and earnings per diluted unit of $2.73. The company stated that the quarterly net income of $1.062 billion was "primarily due to gains on risk management activities," but it does not specify the hedging gain. However, in the same period in 2007, the company reported net income of just $138 million.

Penn West’s long-term debt has about doubled since the third quarter of2007, from $1.824 billion to $3.679 billion. The company also noted,"Our risk management policies have served to minimize our credit lossesfrom troubled counterparties." Again, no specifics.

Realized prices per barrel of oil equivalent totaled $43.33/boe, anincrease of nearly 33% over the same period a year ago. In a letter tounitholders, the company projected that production would be "slightlybelow" previous guidance of 195,000/boe/day.

Penn West will face challenges due to lower realized prices for oil andnatural gas going forward. It’s debt level is also problematic. Thecompany announced in August that it would sell some of its "non-core"properties. That will help offset some of the debt, but probably not byenough.

Paul Ausick
November 12, 2008