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 the Eagle Ford shale in South Central Texas.

102113PVAMapSince 2010, the company has made an active push to increase its exposure in the liquids-rich Eagle Ford to grow the company’s production and reserves.  To define this strategic shift, OAG360 reviewed PVA’s press releases since 2010. Based on our findings in the news releases, the company has successfully sold $168.5 million of natural gas-prone assets and added $456.6 million of new Eagle Ford assets.

As of October 21, 2013, the company’s trading valuations, measured on an Enterprise Value to Trailing Twelve Months Production and Enterprise Value-to-Proved Reserves is $16,313 per Mcfe/d and $2.40 per proved BOE, up 131% and 161%, respectively, since October 22, 2010.

Year to date, the company’s shares are up 81% with most of the upward activity happening over the last five weeks.  Here are a few observations.

  1. PVA has built its Eagle Ford position from initial 6,800 net acres in August 2010 to approximately 62,000 net acres.  This represents 750 wells with a 10-year drilling inventory.
  2. PVA’s diversification efforts over the last four years are impressive. The Eagle Ford now accounts for 60% of PVA’s total production (Eagle Ford produced 11,476 BOEPD during Q2’13) and 40% of its total proved reserves (reserve numbers will be discussed on Q3’13 conference call).
  3. PVA expects oil production to increase by approximately 67% in 2013 over 2012, comprising approximately 82% of product revenues and approximately 53% of production.
  4. PVA’s core acreage wells in Peach Creek and Shiner fields are generating 60% to 70% internal rates of return.
  5. The company’s well performance is consistent, delivering initial production rates averaging between 1,300 BOEPD and 800 BOEPD on a 30-day basis, with EURs of 500 MBOE to 400 MBOE, respectively.
  6. In 2014, PVA will begin to test other horizons such as the Austin Chalk (above the Eagle Ford formation) and the Buda Lime and Pearsall (both below the Eagle Ford formation). PVA said at a recent conference they have recently drilled a Pearsall test well which was gassier than expected.
  7. PVA continues to progress toward reducing well costs. In addition to cost-saving efforts such as pad drilling, the company reduced its average stimulation (completion) cost per stage to $150,000 in Q2’13, down 33% from $200,000 in Q1’13.On a 30-stage well, this equates to savings of $1.5 million per well.
  8. Downspacing continues to be an unknown value driver for many companies sin the Eagle Ford. PVA said in its Q2’13 release that 14 of its recently drilled wells were drilled off of six multi-well pads, with effective spacing of between 45 and 70 acres.
  9. The company expects its Eagle Ford acreage and operation expansions to continue by re-deploying monies raised from non-core asset sales, primarily in East Texas, the Mid-Continent and Mississippi.
  10. Based on the $125,313 per flowing BOEPD transaction value PVA paid for Magnum Hunter’s (ticker: MHR) Eagle Ford acreage, PVA’s pro forma Eagle Ford position using a similar valuation metric (market capitalization per flowing BOEPD) could be worth $1.4 billion today. At the time of this posting on OAG360®, PVA’s market capitalization was $516 million.

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