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Penn West Petroleum

Penn West Petroleum NYSE:PWEDividend Yield: 10.1%

Even to those who know have been following it for a while, Penn West Petroleum (NYSE:PWE) — which operates as PennWest Exploration — is something of an enigma.

It was a trust, but became a corporation in early 2011. Even before (and after) the conversion, though, the company went through a few rounds of debt-based (and convertible-based) financings, and tapped bank-credit facilities. That matters, because to this day the market still isn’t entirely sure how to value — or evaluate — Penn West.

Be that as it may, it might be good that PWE still acts somewhat like a trust, in that it shares its capital spending plan for the year before that particular year starts. For 2013, Penn West reported it was going to reduce its capital spending from 2012’s $1.7 billion to $900 million this year (though it might spend another $300 million if crude prices behave favorably). It also has worked down $1.3 billion worth of long-term debt last year.

That’s the good news.

However, the reduced capital spending plans — even with the reduced debt load — plus the current dividend payout is still greater than Penn West’s cash flow. Some analysts even explicitly hope the company will ratchet down its double-digit yield.

Indeed, it might have to do so at some point in the near future — just to survive.

Article printed from InvestorPlace Media,

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