Penn Virginia Corporation (ticker: PVA) is an independent oil and gas company engaged primarily in the development, exploration and production of oil and natural gas in various domestic onshore regions, including Texas, Oklahoma, Mississippi and Pennsylvania – however, the company expects its Eagle Ford (EF) operations to fuel its growth and transition to oil thru 2015.
On December 16, 2013, Penn Virginia announced the sale of its Eagle Ford Shale natural gas midstream assets to an affiliate of privately held ArcLight Capital Partners, LLC for gross proceeds of $100 million (approximately $95 million net). PVA anticipates using the proceeds to fund its 2014 capital expenditure plan.
Assets Sales Will Continue
The $100 million in assets sold to ArcLight include a natural gas gathering and gas lift system, along with 119 miles of pipelines in Gonzales and Lavaca Counties, Texas. In a company presentation on December 12, 2013, PVA said it intends to divest its Selma Chalk and Granite Walsh systems in 1H’14. Its 2014 goal is to raise $200 to $250 million through divestures and ultimately self-fund its average annual capital program of $500 million by 2016.
Eagle Ford Growth Engine
Based on PVA news releases since 2010, the company has now successfully sold $268.5 million of natural gas assets and added $456.6 million of new Eagle Ford assets. Approximately 5,000 net acres of bolt-on properties have been added since August 2013 at roughly $1,600 per acre. PVA held virtually no Eagle Ford assets in 2010, but has since acquired a total of 112,000 gross acres (72,200 net) and is the operator in approximately 93,800 gross acres (60,500 net). The company hopes to add another 10,000 to 15,000 net acres in the play during 2014.
Self-Funding Goal by 2016 Complimented by Eagle Ford Development
PVA expects 2014 revenues to increase 40% compared to 2013, and believes its current assets have been adequately de-risked by means of testing and downspacing. The company is prepared to spend between $510 million and $540 million in both 2014 and 2015, resulting in drilling a total of 180 gross wells (109 net) in its six rig program (operate five). More than half of the company’s oil is hedged for the upcoming year. By 2015, total company production is expected to reach 7.3 MMBO (10.7 MMBOE), up roughly 220% from 2012’s year-end total of 2.3 MMBO (6.5 MMBOE).
Industry Downspacing Translates Positively for PVA
The average spacing unit across PVA’s acreage footprint is 106 acres per well. At Marathon’s (ticker: MRO) analyst day last week, MRO reported 40 and 60 acre Eagle Ford wells are performing better than 80 to 160 acre Eagle Ford wells. If the mid-point (50 acres) is viable for PVA, the company could essentially double its total drilling locations from 1,058 to 2,116 wells. OAG360 notes 84% of PVA’s locations are undrilled.
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