Basis of Presentation
|6 Months Ended|
Jun. 30, 2020
|Accounting Policies [Abstract]|
|Basis of Presentation||Basis of Presentation
Our unaudited Condensed Consolidated Financial Statements include the accounts of Penn Virginia and all of our subsidiaries. Intercompany balances and transactions have been eliminated. Our Condensed Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Preparation of these statements involves the use of estimates and judgments where appropriate. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of our Condensed Consolidated Financial Statements, have been included. Our Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes included in our Annual Report on Form 10-K for the year ended December 31, 2019. Operating results for the six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.
Adoption of Recently Issued Accounting Pronouncements
Effective January 1, 2020, we adopted and began applying the relevant guidance provided in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update (“ASU”) 2016–13, Measurement of Credit Losses on Financial Instruments (“ASU 2016–13”). We adopted ASU 2016–13 using the optional transition approach with a charge to the beginning balance of retained earnings as of January 1, 2020 (see Note 4 for the impact and disclosures associated with the adoption of ASU 2016–13). Comparative periods and related disclosures have not been restated for the application of ASU 2016–13.
Risks and Uncertainties
As an oil and gas exploration and development company, we are exposed to a number of risks and uncertainties that are inherent to our industry. In addition to such industry-specific risks, the global public health crisis associated with the novel coronavirus (“COVID-19”) has, and is anticipated to continue to have, an adverse effect on global economic activity for the immediate future and has resulted in travel restrictions, business closures and the institution of quarantining and other restrictions on movement in many communities. The slowdown in global economic activity attributable to COVID-19 has resulted in a dramatic decline in the demand for energy, which directly impacts our industry and the Company. In addition, global crude oil prices experienced a collapse starting in early March 2020 as a direct result of disagreements between the Organization of the Petroleum Exporting Countries (“OPEC”) and Russia with respect to production curtailments.
As the breadth of the COVID-19 health crisis expanded and governmental authorities implemented more restrictive measures to limit person-to-person contact, global economic activity continued to decline commensurately. In the second week of April, OPEC, Russia and certain other petroleum producing nations (“OPEC+”), reconvened and agreements were reached to cut production with certain allocations among the OPEC+ participants. Through July 2020, the OPEC+ production curtailment efforts have generally held and there have been modest recoveries of crude oil prices from their historic lows at the height of the COVID-19 health crisis; however, continued progress will be substantially impacted by further OPEC+ considerations in the second half of 2020.
Despite a significant decline in drilling by U.S. producers starting in mid-March 2020, domestic supply and demand imbalances continue to create operational stress with respect to capacity limitations associated with storage, pipeline and refining infrastructure, particularly within the Gulf Coast region. Limited progress in containing the COVID-19 health crisis domestically, including the effects of recent spikes in many regions of the United States, including Texas, has hampered economic recovery. Furthermore, government stimulus and economic relief efforts initiated in the second quarter of 2020 are nearing expiration and will likely have to be extended or supplemented in some form in order to achieve meaningful economic recovery in the second half of 2020. These efforts are further impacted by election year uncertainties and related political conflicts. The combined effect of these aforementioned factors is anticipated to have a continuing adverse impact on the industry in general and our operations specifically.
During March and April 2020, we initiated several actions to mitigate the anticipated adverse economic conditions for the immediate future and to support our financial position and liquidity. The more significant actions that we took during March and April 2020 included: (i) suspending our drilling and completion program (see Note 12), (ii) curtailing production through selected well shut-ins for a period of several weeks in April and May, (iii) securing crude oil storage capacity (see Note 12) in order to maintain a reasonable level of production to (a) allow for the continued marketing of NGLs and natural gas rather than delaying revenues through additional shut-ins and (b) capitalize on potential increases in commodity prices, (iv) substantially expanding the scope and range of our commodity derivatives portfolio (see Note 5) and (v) utilizing certain liquidity-related provisions of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) and related regulations, the most significant of which was the receipt in June 2020 an accelerated refund of our remaining refundable alternative minimum tax (“AMT”) credit carryforwards in the amount of $2.5 million.
Going Concern Presumption
Our unaudited Condensed Consolidated Financial Statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and other commitments in the normal course of business.
Management has evaluated all of our activities through the issuance date of our Condensed Consolidated Financial Statements and has concluded that no subsequent events have occurred that would require recognition in our Condensed Consolidated Financial Statements or disclosure in the Notes thereto.
The entire disclosure for the basis of accounting, or basis of presentation, used to prepare the financial statements (for example, US Generally Accepted Accounting Principles, Other Comprehensive Basis of Accounting, IFRS).
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef