Notes from the Road: Penn Virginia Corporation (NYSE: PVA)

EnerCom traveled with Penn Virginia Corporation (NYSE: PVA) in London on June 14 and 15, prior to presenting at EnerCom’s London Oil & Gas Conference™ 3 (www.enercomlogc.com).

We’ve compiled below some of the questions and issues posed by institutional investors during meetings in London:

• Your Eagle Ford acreage appears to be in proximity to other good wells in the play, what can you tell me about the nature of the formation and how that impacts well results?
• What types of royalty rates are you seeing in the Eagle Ford?
• Recent deals in the Eagle Ford has acreage going for $15,000 per acre or more. IF PVA plans to increase its acreage position in the Eagle Ford, then what are your strategies for acquiring the leases at a reasonable cost?
• Given the ramp-up in drilling activity in the Eagle Ford, do you have access to services, including frac crews, water disposal and drilling rigs?
• What are the risks of operating in the Eagle Ford? If water is a critical resource for frac’ing the wells, then what strategies are you using to secure the water needed by your operations?
• What are your drilling and completion costs for wells in the Marcellus shale?
• Since PVA is driven by rates of return, and you’ve allocated 52% of the company’s 2011 capital budget to the Eagle Ford (because it offers the best returns), then what are your plans for the company’s Marcellus shale acreage?
• If you were to monetize the Marcellus shale, then how quickly could you accelerate operations in the Eagle Ford?
• Your Haynesville shale acreage is in proximity to Petrohawk (NYSE: HK) and Range Resources Corporation (NYSE: RRC), and if PVA has suspended drilling in the play, then how much are your delay rentals for any acreage not held by production?
• We know that PVA tends to be conservative, but your Eagle Ford wells look no worse than those from other operators. Are you being overly conservative on your other plays?
• PVA is a “screaming value” on the basis of proved reserves, but is it your view that reserves in all your plays are valued equally? Do you believe that your Eagle Ford shale is being valued properly given recent transactions in the play and your announced well results?
• How many wells will it take for you to appraise your Marcellus acreage and determine how good it is? How much capital do you anticipate it will take to prove-up the Marcellus and increase the value of the play? If you decided to reallocate the capital earmarked for the Marcellus, then how much would it take to hold your acreage in the play?
• It doesn’t sound like you found the right terms for a joint venture for developing your Marcellus acreage, what deal terms were you looking for? Did you talk to some of the Asian companies that seem to be doing deals in North America?
• Are you looking to a Marcellus joint venture or sale to be a source of capital for developing and expanding your Eagle Ford assets?
• We have been hearing some feedback that returns in the wet gas window of the Eagle Ford are better than elsewhere – are you hearing the same thing? If so, then what is driving those returns?
• Your asset portfolio includes positions in the Eagle Ford, Haynesville and Marcellus shale plays in addition to the Selma Chalk, Granite Wash (Colony Wash) and the Horizontal Cotton Valley in East Texas. Given the diversified portfolio, where are your best rates of return and what other factors do you consider in allocating capital?
• What can you tell me about the economics of the Horizontal Cotton Valley wells?
• If you continue drilling in the Eagle Ford and drive-up oil and liquids production, then what is your sense of what production will look like in terms of from which plays and the percentage of oil in the production stream?
• What is your gas/oil mix today and where do you see it in the future, if you keep drilling in the Eagle Ford?
• How will producing more oil and liquids change your revenue and cash flow streams?
• Our model shows that you will outspend cash flow from operations in 2011. Do you believe that you can increase liquids production fast enough to get to positive free cash flow in 2012 or 2013? Are there assets that you could sell to reduce or even eliminate the 2011 outspend?
• What level of debt are you comfortable with, in terms of a debt-to-equity ratio?
• If natural gas prices decline to $4.00 per MMBtu, then does that create a lot of write-downs on your reserves?
• Since PVA is returns-driven, then what are you experiencing in terms of cost inflation and how does that impact your returns? Do your long-term service contracts protect your returns to some degree?
• If your 2011 capital budget is lower than a few years ago, then how can you grow production, given the high decline rates in the Eagle Ford and the other plays you are drilling? Is it because you just starting drilling in these plays and don’t have much production from them yet?
• Since the Granite Wash play was a disappointment, what have you learned from your experience in the Chesapeake-operated Granite Wash play that you participated in?
• What are our transportation costs in the Eagle Ford? Would you participate in the building of a pipeline in the play to reduce those costs?

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