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Penn West Announces Management-Initiated Internal Review of Accounting Practices and Decision to Restate Certain Historical Financial Statements

July 29, 2014

No impact on previously disclosed cash and debt balances

Penn West anticipates possible delay in reporting second quarter
financial results

CALGARY, July 29, 2014 /PRNewswire/ – PENN WEST PETROLEUM LTD. (TSX – PWT; NYSE
– PWE) (“PENN WEST“, the “COMPANY“, “we“, “us” or “our“) announced today that the Audit Committee of the Company’s Board of
Directors is conducting a voluntary, internal review of certain of the
Company’s accounting practices.

While this review is not yet completed, the Board of Directors of Penn
West has concluded that certain of the Company’s historical financial
statements and related management’s discussion and analysis (“MD&A“) must be restated, which may result in the release of second quarter
2014 financial results being delayed.

REVIEW DOES NOT AFFECT CASH AND DEBT BALANCES, PRODUCTION GUIDANCE OR
OPERATIONS

Although the review is not yet complete, Penn West wishes to emphasize
that the review does not affect previously disclosed cash and debt
balances or previously released 2014 production guidance. Neither does
the review affect operations, strategy and anticipated growth going
forward.

Rick George, Chairman of the Board, commented, “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.”

Dave Roberts, President and Chief Executive Officer, also commented, “We
continue to build on the substantial operational and structural
improvements we have made to the business in the past year, which we
have communicated in a separate release today that speaks to our
operating performance through the second quarter. 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. As a result of the improvements we have made to the
business in the past year, we are a more resilient organization today.”

INDEPENDENT REVIEW

The Audit Committee’s review arises from accounting practices that came
to the attention of the Company’s new Senior Vice President and Chief
Financial Officer, David Dyck, who assumed that position on May 1,
2014. The Company’s management then recommended to the Board of
Directors that the Audit Committee conduct an independent review of
these practices. The Audit Committee, comprised solely of independent
directors, retained independent Canadian and U.S. legal counsel, and an
independent forensic accounting firm, to assist the Audit Committee in
conducting its review.

The Audit Committee and its independent advisors are examining certain
entries which appear to have been made to reduce operating costs and
increase the Company’s reported capital expenditures and royalty
expense, and that appear to have been made without adequate supporting
documentation. The accounting practices under review involve the
capitalization of certain operating costs as property, plant and
equipment, the income statement classification of certain costs and
credits, and the timing of certain accruals relating to production,
operating costs and capital. The review currently covers 2014 and the
four previous fiscal years.

The preliminary findings from the review to date are as follows:


          (a) For the fiscal year 2013, the Audit Committee and its
              independent advisors have identified approximately $70
              million in operating expenses that were reclassified to
              property, plant and equipment as capital expenditures without
              adequate support. For the fiscal year 2012, approximately
              $111 million in operating expenses were reclassified to
              property, plant and equipment as capital expenditures without
              adequate support.  As a result, the property, plant and
              equipment balances recorded on the Company's balance sheets
              in those fiscal years appear to be overstated.

          (b) For each of the fiscal years 2012 and 2013, the Audit
              Committee and its independent advisors have identified
              approximately $100 million in operating expenses that were
              incorrectly reclassified as royalty expenses.  This
              reclassification had no impact on net income or funds flow.

These numbers are necessarily preliminary, are unaudited, and could
change as the review continues. These accounting practices appear to
have existed in prior years, with the amounts varying from year to
year. The Company currently believes that the remaining accounting
practices under review are quantitatively less significant to the
Company’s historical financial statements.

The senior finance and accounting personnel believed responsible for the
adoption and use of these practices have ceased to be employed by the
Company.

RESTATEMENT OF HISTORICAL FINANCIAL STATEMENTS

Based on the results of the review to date, the Board of Directors,
acting on the recommendation of the Audit Committee, has made a
decision to restate the Company’s audited annual financial statements
for at least the years ended December 31, 2012 and 2013 and its
unaudited interim financial statements for the three months ended March
31, 2014 and 2013 and all related MD&A (collectively, the “Restated Financials“). As a result of this decision, the Company’s historical financial
statements and related audit reports and MD&A should not be relied
upon. Penn West intends to file the Restated Financials as soon as
practicable. When the Company files Restated Financials, it will also
file with the SEC one or more amended Annual Reports on Form 40-F and
Reports on Form 6-K for applicable annual and interim periods.

The Company currently expects that the effect of the restatement will be
to reduce historical reported capital expenditures, property, plant and
equipment balances, royalty expenses and depletion expense and increase
operating expenses. The review and restatement may also require Penn
West to reduce its capital expenditure guidance and royalty expense
assumptions and increase its operating cost assumptions for 2014 from
those originally disclosed in November 2013. These adjustments would
in turn reduce the Company’s 2014 funds flow assumptions.

As a result of the identified accounting practices and the decision to
restate certain historical financial results and/or the potential delay
in reporting second quarter, 2014 financial results, the Company
believes that it may not be, or may cease to be, in compliance with
certain of its covenants under its unsecured, revolving syndicated bank
facility and the terms of its senior unsecured notes, subject to any
applicable cure periods. However, the Company believes that at no time
did it fail to comply with the financial covenants contained in its
bank facility and its senior unsecured notes. The Company has
initiated discussions with lenders under its bank facility and will be
initiating discussions with holders of its senior unsecured notes
regarding the potential impact of these matters and the possible
waivers of affected covenants.

Subject to satisfactory resolution of these matters, and consistent with
historical practices, the Company currently expects to declare its
third quarter, 2014 dividend when it approves and files its second
quarter, 2014 financial results.

The Company has voluntarily informed the Alberta Securities Commission
(the “ASC“) and the United States Securities and Exchange Commission (the “SEC“) about its internal review.

As part of the process described above, the Company is re-examining its
internal controls over financial reporting and disclosure controls and
procedures in order to identify any material weaknesses with such
controls and procedures. As a result of the internal review, the
Company will take all appropriate steps necessary to remedy any
material weaknesses and to ensure that a similar situation is avoided
in the future.

Unless circumstances otherwise require, Penn West will provide further
comment when the review is completed, and the Board receives and
considers the Audit Committee’s findings and recommendations. In
accordance with the Company’s customary practice, we will be hosting a
conference call and webcast presentation to discuss our second quarter,
2014 results following the filing of our second quarter financial
statements and management’s discussion and analysis.

In the meantime, to provide as much information about the Company’s
operations as is possible, the Company is providing an operational
update on its second quarter 2014 activities and preliminary third
quarter 2014 activities in a separate news release today.

TRADING BLACKOUT

In conjunction with the preparation of our Q2 Filings (defined below)
and as a result of the internal review, Penn West established a
blackout on trading by directors, officers and other insiders of Penn
West, and intends to continue the blackout until the Q2 Filings and
Restated Financials have been filed.

FILING REQUIREMENTS

Under National Instrument 51-102 of the Canadian Securities
Administrators, the Company’s unaudited interim financial statements
for the three and six month periods ended June 30, 2014 and the related
MD&A and management certifications (the “Q2 Filings“) are to be filed no later than August 14, 2014.

As a result of the review and the decision to file the Restated
Financials, the Company anticipates that there could be a delay in
filing the Q2 Filings. As a precaution, the Company will be applying
to the ASC pursuant to Part 4 of National Policy 12-203 (“NP 12-203“) for a Management Cease Trade Order (“MCTO“) in connection with the possible late filing of the Q2 Filings. If an
MCTO is issued, the Company intends to satisfy the provisions of the
“alternative information guidelines” as set out in NP 12-203, including
the requirement to file bi-weekly status reports in the form of news
releases containing prescribed updating information, until the Q2
Filings are made. An MCTO would not generally affect the ability of
persons who are not directors, officers or insiders of the Company to
trade in securities of the Company. There can be no assurance that an
MCTO will be issued.

Forward-Looking Statements

Certain statements contained in this document constitute forward-looking
statements or information (collectively “forward-looking statements”)
within the meaning of the “safe harbour” provisions of applicable
securities legislation. Forward-looking statements are typically
identified by words suggesting future events or future performance. In
particular, this document contains forward-looking statements
pertaining to, without limitation, the following: our anticipation that
the release of our second quarter 2014 financial results may be
delayed; our belief that the review does not affect our previously
disclosed cash and debt balances, previously released 2014 production
guidance, or our operations, strategy and anticipated growth going
forward; our intention to take the steps necessary to correct our
historical financial statements and to take appropriate steps to ensure
that we avoid a similar situation in the future; our ability to
continue to build on the substantial operational and structural
improvements we have made to the business in the past year; our belief
that we are on target to deliver on our promises to our stakeholders;
our belief that the preliminary findings from the review to date could
change as the review continues; our belief that the accounting
practices under review other than the incorrect booking of operating
expenses as capital expenditures and royalty expenses are
quantitatively less significant to our historical financial statements;
our intention to file the Restated Financials and related SEC filings
as soon as practicable; our expectation that the effect of the
restatement will be to reduce historical reported capital expenditures,
property, plant and equipment balances, royalty expenses and depletion
expense and increase operating expenses; our belief that the review and
restatement may require us to reduce our capital expenditure guidance
and royalty expense assumptions and increase our operating cost
assumptions for 2014, which in turn may reduce our 2014 funds flow
assumptions; our belief that we may cease to be in compliance with
certain of our covenants under our bank facility and the terms of our
senior unsecured notes and our intention to seek possible waivers of
affected covenants; our expectation to declare our third quarter
dividend when we approve and file our second quarter financial results;
our intention to take all appropriate steps necessary to remedy any
material weaknesses and to ensure that a similar situation is avoided
in the future; our belief that senior finance and accounting personnel
believed responsible for the adoption and use of these practices have
ceased to be employed by us; our intention to provide further comment
when the review is completed; our intention to continue the blackout on
directors, officers and other insiders until the Q2 Filings and
Restated Financials have been filed; and our intention to apply to the
ASC for an MCTO in connection with the possible late filing of the Q2
Filings.

With respect to forward-looking statements contained in this document,
we have made assumptions regarding, among other things: the nature and
magnitude of the accounting errors that will need to be remedied in the
Restated Financials; our ability to obtain waivers from our lenders and
noteholders for any defaults under our credit and note purchase
agreements and our resulting ability to declare and pay our third
quarter dividend; our belief that we will be able to obtain an MCTO
rather than a cease trade order if we file our second quarter financial
results late; that the final results of the internal review will not be
substantially different than the preliminary results of the review; and
our ability to execute our long-term plan as described herein and in
our other disclosure documents and the impact that the successful
execution of such plan will have on our Company and our shareholders.
In addition, many of the forward-looking statements contained in this
document are located proximate to assumptions that are specific to
those forward-looking statements, and such assumptions should be taken
into account when reading such forward-looking statements.

Although we believe that the expectations reflected in the
forward-looking statements contained in this document, and the
assumptions on which such forward-looking statements are made, are
reasonable, there can be no assurance that such expectations will prove
to be correct. Readers are cautioned not to place undue reliance on
forward-looking statements included in this document, as there can be
no assurance that the plans, intentions or expectations upon which the
forward-looking statements are based will occur. By their nature,
forward-looking statements involve numerous assumptions, known and
unknown risks and uncertainties that contribute to the possibility that
the predictions, forecasts, projections and other forward-looking
statements will not occur, which may cause our actual performance and
financial results in future periods to differ materially from any
estimates or projections of future performance or results expressed or
implied by such forward-looking statements. These risks and
uncertainties include, among other things: the possibility that the
final results of the review uncover accounting errors not identified in
the preliminary results of the review and/or that the magnitude of the
accounting errors is significantly different than currently expected;
the possibility that we require, but cannot obtain, waivers from our
lenders and noteholders for one or more defaults under our credit and
note purchase agreements with the result that we are unable to access
additional borrowings under our credit facility and/or we are required
to repay all amounts of principal and interest owing under our credit
facility and senior notes and/or we are unable to declare and pay our
third quarter dividend; that we do not obtain an MCTO, or that we
obtain an MCTO but do not subsequently file our Q2 Filings and/or
Restated Financials by the requisite deadlines, and that as a result of
one of these events an order is issued ceasing trading in our
securities; that the final results of the internal review will be
substantially different than the preliminary results of the review; the
possibility that we will not be able to successfully execute our
long-term plan in part or in full, and the possibility that some or all
of the benefits that we anticipate will accrue to our Company and our
securityholders as a result of the successful execution of such plan do
not materialize; and the other factors described in our public filings
(including our Annual Information Form) available in Canada at
www.sedar.com and in the United States at www.sec.gov. Readers are
cautioned that this list of risk factors should not be construed as
exhaustive.

The forward-looking statements contained in this document speak only as
of the date of this document. Except as expressly required by
applicable securities laws, we do not undertake any obligation to
publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. The
forward-looking statements contained in this document are expressly
qualified by this cautionary statement.

About Penn West

Penn West is one of the largest conventional oil and natural gas
producers in Canada. Our goal is to be the company that redefines oil &
gas excellence in western Canada. Based in Calgary, Alberta, Penn West
operates a significant portfolio of opportunities with a dominant
position in light oil in Canada on a land base encompassing
approximately five million acres.

Penn West shares are listed on the Toronto Stock Exchange under the
symbol PWT and on the New York Stock Exchange under the symbol PWE.

SOURCE Penn West


Source: PR Newswire



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