Image source: Getty Images.

What: Shares of Penn West Petroleum (NYSE: PWE) skyrocketed on Monday, surging 47% by 10:45 a.m. EDT. Fueling the buying frenzy was the announcement that the company had secured a buyer for its prized Dodsland Viking oil assets.

So what: With time running out to avoid defaulting on its debt covenants, Penn West Petroleum was left with no choice but to put one of its two remaining core assets on the auction block. Initially, analysts figured that the Viking assets would fetch at least C$400 million given their high margins and growth potential. However, the assets ended up attracting several bidders, with Canadian Pension Plan Investment Board-backed Teine Energy turning in the winning bid at a stunning $C975 million. That put the the valuation of the assets well above recent comparable sales, which will help Penn West Petroleum meaningfully reduce its outstanding debt.

In fact, when combined with $140 million of additional non-core asset sales the company also announced, its net debt will fall by $1.1 billion once these transactions close. That will reduce net debt to just $600 million, which is substantially below the $2.1 billion where it began the year. Furthermore, as a result of these transactions, it will not only be in compliance with its debt covenant as of the end of the current quarter, but it projects to be comfortably in compliance with all its covenants for the rest of the year.

Penn West Petroleum's asset sale progress bodes well for other beleaguered drillers because it's clear that buyers are hungry for oil assets. In particular, Pengrowth Energy (NYSE: PGH) could stand to benefit from the deal because of its desire to sell assets to clean up its own balance sheet. Pengrowth Energy, which had $1.7 billion in debt outstanding -- including $527 million maturing next year -- is hoping to sell upwards of $300 million in assets to retire some of that maturing debt. Pengrowth Energy is now a bit more likely to hit that target given that it can point to Penn West Petroleum's asset sales as a comparable valuation in its own sales process.

Now what: Penn West Petroleum investors can breathe a big sigh of relief. That's after the company's asset sales completely remove the risk of defaulting on its debt this year. Also, it closes the chapter on its turnaround plan, and it will now be able to turn the page and focus on growing from its now-shrunken core.