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CALGARY Alberta (Reuters) - Penn West Petroleum Ltd said on Thursday a review of its accounting practices showed weak internal controls, but its shares rose nearly 8 percent as it reported a strong, though delayed, second-quarter profit.
The company, one of Canada's largest conventional oil producers, launched the accounting review in late July after its incoming chief financial officer found irregularities that misclassified nearly C$300 million ($273 million) in expenses.
Shares of Penn West, which has often struggled to meet its own production and profit targets, had dropped more than 20 percent after it admitted to the irregularities. The accounting problems undercut Chief Executive Dave Robert's moves to regain investors' confidence by reducing staff, revamping operations and selling off surplus properties.
But the release of the review and the quarterly results showing that the company returned to profit after a loss in the comparable year-ago period reassured investors.
"There wasn't any more damage than what was first filed," said Jeremy McCrea, an analyst with AltaCorp Capital. "Guys are just elated that there isn't any more bad news and that's why we've seen this reaction."
Penn West's shares rose 60 Canadian cents to C$8.33 on the Toronto Stock Exchange. Volume was more than 3.1 million shares, nearly three times the daily average over the past 90 days.
Despite the rise, Roberts said he expects investors to remain cautious about the company's prospects after years of weak results and missed targets.
"We still have a lot of proving to do in terms of execution capability," he told Reuters. "This is a company with a pretty poor track record. ... The market is going to remain in a 'show-me' state for a little while."
The Calgary, Alberta-based company said it will revise its financial statements for 2012, 2103 and 2014's first quarter to show higher operating costs and lower cash flow for all the periods. As a result of the revisions, profit will be 7 percent higher for the first quarter of 2014, 3 percent higher for all of 2013 and 16 percent lower for 2012.
The company said on Thursday there were material weaknesses and a significant deficiency in its internal controls over financial reporting and that it was working to fix the issues. Penn West has notified its auditor, KPMG LLP [KPMG.UL], of its findings. The accounting firm declined to comment.
Penn West, which has reduced its headcount by almost 50 percent since late 2012, posted a second-quarter profit of C$143 million, or 29 Canadian cents per share, compared with a loss of C$53 million, or 11 Canadian cents per share, a year earlier.
Revenue fell 13 percent to C$650 million, hurt by a 24 percent drop in total production.
The company maintained its 2014 average production forecast of 101,000 to 106,000 barrels of oil equivalent per day.
The second-quarter results originally had been scheduled to be released on July 30.
Reporting by Scott Haggett in Calgary and Ashutosh Pandey in Bangalore; Editing by Paul Simao, Jeffrey Hodgson and Leslie Adler