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CALGARY (Reuters) - Penn West Petroleum Ltd PWT.TO PWE.N said it has uncovered accounting irregularities that misclassified nearly C$300 million ($275.05 million)in expenses over the last four years, and the Canadian oil producer will restate its results.
Investors reacted with dismay, sending its shares down 18 percent on Wednesday, while several U.S. law firms said they would assess if there had been violations of securities laws on behalf of Penn West's investors and lawsuits could follow.
Penn West, listed in Toronto and New York, said that a preliminary review of its accounting practices carried out by Chief Financial Office David Dyck, who was appointed May 1, found that C$70 million of operating expenses were classified as capital expenditures in fiscal 2013.
It also found C$111 million of expenses that were listed as capital expenditures in fiscal 2012 while C$100 million of operating expenses were listed as royalty expenses in each of the 2012 and 2013 fiscal years.
The company said it has notified regulators of the irregularities and will restate its financial statements for 2012 and 2013 as well as for the first quarter of this year.
Penn West is in the midst of a restructuring after years of underperforming rivals. Since George, the former chief executive of Suncor Energy Inc (SU.TO), took control of the board last year, the conventional oil producer replaced its chief executive, appointing David Roberts, the former chief operating officer of Marathon Oil Corp (MRO.N). It has also let go senior managers and sold assets to help bring costs under control.
"We think the assets are good ... but unfortunately there continue to be some skeletons in the closet from the previous management team." said Ryan Bushell, an asset manager at Leon Frazer & Associates, which holds about 3 million Penn West shares.
Penn West shares fell 18 percent, or C$1.74, to C$8.20 on the Toronto Stock Exchange. The stock is down 8.1 percent since January 2013, while the TSE's energy index is up 28 percent over the same period. In New York, the stock fell 17 percent to $7.55.
Morningstar analyst Robert Bellinski criticized Penn West's accounting methods in an October 2013 report, specifically on the amount of goodwill Penn West carried on its books.
"It doesn't come as a surprise to me," Bellinski said on Tuesday's release. "I've been calling them out on their accounting since last year."
The Alberta Securities Commission and U.S. Securities and Exchange Commission both declined comment. Penn West auditors KPMG also declined comment.
Penn West said it was examining its documents going back four years and that, as a result, it might not be in compliance with certain debt covenants. It has started discussions with its lenders about the potential impact.
Penn West also released preliminary production data for the second quarter late on Tuesday, pegging output for the period at 108,130 barrels of oil equivalent per day. While higher than many analysts expected, Penn West's ratings were still cut in response to the accounting issues.
RBC Capital Markets cut its price target to C$10 from C$12 while TD Securities chopped its target to C$9.50 from C$11.50.
The accounting review does not affect previously disclosed cash and debt balances or the company's 2014 production guidance, Penn West said.
Additional reporting by Cameron French in Toronto; Editing by Lisa Von Ahn and Gunna Dickson