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Penn West Petroleum shares dive after accounting review finds faults

CALGARY - Shares in Penn West Petroleum Ltd. (TSX:PWT) fell sharply Wednesday after the company announced it's reviewing its accounting practices going back several years and will have to restate some of its past financial reports.

Its shares plunged 13.78 per cent or $1.37 to close at $8.57. They had traded as slow as $8.18 earlier in the day on the Toronto Stock Exchange.

Late Tuesday, the Calgary-based oil and gas producer said chief financial officer David Dyck, who started in the role on May 1, found inadequate documentation to support how some of its expenses were classified in the past.

The review will result in a restatement of previous financial reports for at least 2012 and 2013, as well as for the first quarter of 2014, and may delay completion of its full second-quarter report.

The review covers 2014 so far and the four previous fiscal years.

"We have acted quickly and effectively to review our accounting practices. We will take the steps necessary to correct our historical financial statements and we will take appropriate steps to ensure that we avoid a similar situation in the future," board chairman Rick George, the former CEO of Suncor Energy Inc. (TSX:SU), said in a statement.

Among other things, the board's audit committee and its independent advisers have identified $111 million of operating expenses that were classified without adequate support as capital expenditures in property, plant and equipment in 2012 and a further $70 million in 2013.

They also found about $100 million in operating expenses that were incorrectly reclassified as royalty expenses.

Penn West said the review may require it to reduce its 2014 capital spending and royalty expense assumptions, as well as increase operating cost assumptions. That would result in lower funds flow this year than anticipated.

However, its cash and debt balances, production guidance and operations are unaffected.

Separately, Penn said its 2014 production guidance remains between the equivalent of 101,000 and 106,000 barrels per day of crude, gas and liquids.

In the quarter ended June 30, Penn West says it produced the equivalent of about 108,130 barrels per day.

"If you read that release, you will find that our asset quality and execution capability remain strong, our long-term plan for the company remains intact, and importantly today, we are on target to deliver on our promises to our stakeholders," said CEO Dave Roberts.

"As a result of the improvements we have made to the business in the past year, we are a more resilient organization today."

Desjardins analyst Kristopher Zack said the production figures were positive, but the accounting review is just "another distraction" for a company that has been trying to turn itself around.

"Although the company has continued to make solid progress by improving operating efficiencies in its key focus areas, we believe the accounting review will provide another overhang on the stock," he said in a note to clients.

Analysts at Dundee Capital Markets said the financial restatements shouldn't have a material impact. They said the Penn West ship is "heading in the right direction," but it's "not at full steam (yet)."

Penn West has had a tumultuous ride over the past year or so, replacing its CEO, slashing its dividend, cutting its workforce and selling assets.

Follow @LaurenKrugel on Twitter

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