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More Than An Exploration And Production Company
Posted: Jan 28, 2009 14:03 PM by Eric Fox
An investment in Penn Virginia Corp. (NYSE:PVA) gives you a piece of a fast-growing exploration and production company, plus a large ownership in an energy-related master limited partnership that owns coal reserves and midstream assets.
Ownership In Two Other Publicly Traded Entities
Penn Virginia is an oil and gas exploration and production company with operations in a number of plays in North America, including East Texas, the Mid-Continent, Appalachia, Mississippi and the Gulf Coast. The company also has an ownership interest in two other publicly traded entities: Penn Virginia Resource Partners (NYSE:PVR) and Penn Virginia GP Holdings (NYSE:PVG).
Penn Virginia Resource Partners owns 818 million tons of coal reserves and 240,000 acres of timberland. The company also owns natural gas midstream assets, including 4,000 miles of pipelines and seven natural gas-gathering and processing facilities.
Since Penn Virginia Corp. owns the general partner and a large part of the limited partnership interests of Penn Virginia GP Holdings, Penn Virginia Corp. consolidates the financial results of Penn Virginia GP Holdings in its consolidated financial statements.
Likewise, Penn Virginia GP Holdings owns the general partner of Penn Virginia Resource Partners and a large limited-partnership interest in the company. Therefore, Penn Virginia GP Holdings consolidates the financial results in its consolidated financial statements.
What Does All This Mean?
The bottom line is that Penn Virginia Corp., the parent company, gets distributions every quarter from the other two entities. The parent company received $42 million in distributions in the 12 months ending September 30, 2008.
Exploration And Production Operations
Penn Virginia Corp. has been growing very quickly the last few years. From 2004 through the end of 2007, the company grew proven reserves at a 24% compound annual growth rate and a 21% production rate.
The company also has a large inventory of low-risk drilling locations in North America, including the Haynesville Shale in northern Louisiana, the Anadarko Basin and coalbed methane in Appalachia. Its proven reserves break down as follows by region:
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Region
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Proven Reserves
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East Texas
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292 Bcfe
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Gulf Coast
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36 Bcfe
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Mid-Continent
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80 Bcfe
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Appalachia
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133 Bcfe
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Mississippi
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139 Bcfe
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Transformation To A More Diversified Entity
Penn Virginia Corp. has spent the last four years transforming itself from a predominately Appalachian-based producer to a more diversified entity. In 2003, approximately 45% of its production was from Appalachia compared to about 25% in the third quarter of 2008.
The company has 61,000 net acres under lease in the Haynesville Shale, and it is currently running four rigs developing this area. In the Anadarko Basin, Penn Virginia Corp. has 10,000 net acres under lease and has a partnership with Chesapeake Energy (NYSE:CHK) to develop this play. Chesapeake just sold some of its reserves in the Anadarko Basin as part of a volumetric production payment transaction. It is unclear at this point how the partnership will be affected by this transaction.
The company refers to its Appalachian assets as its "bread and butter" with 1.3 million acres. Wells drilled here are usually shallower and cheaper than other plays in North America, and its proximity to Northeastern gas markets usually brings a higher price for the gas.
Bottom Line
While Penn Virginia Corp. looks like a typical non-diversified exploration and production company, its ownership in two other publicly traded companies may give it an edge over its peers.
Learn more about investing in companies from this sector in our Oil And Gas Industry Primer and Accounting For Differences In Oil And Gas Accounting.)
By Eric Fox
Eric J. Fox, is the founder of Brittain Capital Management, LLC., which manages the Alesia Fund, LP., a Value oriented long/short investment partnership. You can read more of his views on investments at his blog - Stock Market Prognosticator.
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