Penn Virginia Sells $30.5MM of Natural Gas Assets; Keeps Getting Oilier

Penn Virginia Corporation (NYSE: PVA) announced on July 29, 2011, that it entered into an agreement to divest a substantial portion of its Arkoma Basin assets, as well as certain Mid-Continent assets to Unit Corporation (NYSE: UNT) for $30.5 million in cash. This sale is expected to close by the end of August 2011.

The asset mix being sold is 97% natural gas, and includes coalbed methane (CBM) interests in Hartshorne, Woodford Shale properties, and a number of conventional natural gas plays. PVA reported net production and proved reserves associated with the assets are approximately 7.8 MMcfe/d and 42.5 Bcfe (78% proved developed), respectively. Based on the sale price of $30.5 million, the production and proved reserves are valued at $3,910 per flowing Mcfe/d and $0.72 per proved Mcfe. Scotia Waterous reported in its February 2011 issue of its U.S. Market Review that the weighted average deal value for proved reserves for Mid-Continent assets was $1.58 per Mcfe in 2010. PVA estimates that its 2011 production will decrease by 0.9 Bcfe.

OAG360 Comments:

Penn Virginia continues to allocate capital toward more oily projects in an effort to high-grade its reserve and production mix. Today’s announcement shows investors that PVA is willing to divest assets to put its capital to use in projects that will provide a greater return. In December 2009, the company sold all of its Gulf Coast assets (79% gas) to Hilcorp Energy for $38 million in cash. Eight months later, PVA purchased 6,800 net acres in the Eagle Ford Shale for $31.1 million in cash. The company estimates that it will allocate 77% of its 2011 CAPEX budget of $350 million to oil and liquids rich plays. Look for PVA to strengthen its leasehold in both the oily Eagle Ford Shale and liquids rich Anadarko Basin.

Operational Update on the Eagle Ford: As of June 14, 2011, PVA had six horizontal wells in the Eagle Ford on production, with an additional three wells drilling and three wells awaiting completion. PVA has secured a one-year frac agreement with C&J Energy (NYSE: CJES) to provide its hydraulic fracturing needs this year. Initial results are promising as PVA’s first six Eagle Ford wells recorded 24-hour peak production rates between 514 BOPD and 1,876 BOPD.

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