Eighth Consecutive Quarterly Production Record and a 40 Percent Increase in Production over the Prior Year Quarter
Penn Virginia Corporation (NYSE:PVA) today announced record levels of quarterly production and provided an update of its oil and gas operational activities, including third quarter 2007 operational results and increased 2007 production guidance.
Third Quarter Highlights and Guidance Update
Operational results for PVA's oil and gas segment during the third quarter of 2007 included the following:
-- Record oil and gas production of 11.1 billion cubic feet of natural gas equivalent (Bcfe), or 120.7 million cubic feet of natural gas equivalent (MMcfe) per day; -- Year-over-year production growth of 40 percent over the 7.9 Bcfe, or 86.0 MMcfe per day, in the third quarter of 2006; -- Sequential production growth of 10 percent over the 10.1 Bcfe, or 110.5 MMcfe per day, in the second quarter of 2007; -- Oil and gas capital expenditures of approximately $167 million, including $73 million for reserve and leasehold acquisitions; -- 61 (44.3 net) wells drilled, with 60 (43.3 net) successes (a 98 percent success rate) and one (1.0 net) unsuccessful well; Full-year 2007 guidance updates are as follows: -- Revised full-year 2007 production guidance, increasing the estimated full-year levels to a range of between 40.5 and 41.5 Bcfe, or between 111.0 and 113.7 MMcfe per day; and -- Revised full-year 2007 oil and gas capital expenditures guidance, increasing the estimated full-year levels, including reserve acquisitions, to a range of between $486 and $500 million. Third Quarter 2007 Operational Results
Production in the third quarter of 2007 was 11.1 Bcfe, or 120.7 MMcfe per day, an increase of 40 percent over the 7.9 Bcfe, or 86.0 MMcfe per day, in the third quarter of 2006. Production in the third quarter of 2007 represented the eighth consecutive quarterly production record and was 10 percent higher than the previous record of 10.1 Bcfe set in the second quarter of 2007. The year-over-year production increase was primarily due to successful exploratory drilling in south Louisiana in late 2006 and early 2007, active development drilling programs and acquisitions in the Cotton Valley, the Mid-Continent region and the Selma Chalk. The sequential quarterly production increase was due to active development drilling programs and, to a lesser extent, acquisitions in the Cotton Valley, the Mid-Continent region and the Selma Chalk, as well as increased horizontal coalbed methane (HCBM) volumes in Appalachia due to drilling and the positive effects of dewatering of wells that had been previously drilled and shut-in wells.
Based on production and drilling program results thus far in 2007, PVA now expects full-year 2007 production to range between 40.5 and 41.5 Bcfe, or between 111.0 and 113.7 MMcfe per day, as compared to the 39.0 to 40.0 Bcfe of previous guidance. The revised production guidance represents an expected increase of between 30 and 33 percent over 2006 production levels. For the month of September 2007, daily oil and gas production averaged approximately 122 MMcfe per day. PVA has provided additional guidance details in the separate third quarter 2007 financial results press release.
During the third quarter of 2007, oil and gas capital expenditures were approximately $167 million ($375 million for the first nine months of 2007), consisting of:
-- $90 million to drill 61 (44.3 net) wells, with 60 (43.3 net) successes and one (1.0 net) unsuccessful well; -- $4 million for the expansion of gathering systems and other production facilities; and -- $73 million for leasehold and reserve acquisitions, seismic data and other expenditures.
PVA's 2007 oil and gas capital expenditures budget is $334 million, excluding proved reserve acquisitions. With the closing of approximately $138 million of leasehold and reserve acquisitions during 2007, PVA now expects full-year 2007 oil and gas capital expenditures to range between $486 and $500 million.
Third Quarter 2007 Operations Update
Cotton Valley / East Texas - In the Cotton Valley play in East Texas during the third quarter of 2007, PVA drilled 22 (13.6 net) wells, including: 18 (9.6 net) wells within PVA's area of mutual interest (AMI) with GMX Resources Inc. (NASDAQ:GMXR) and four wells outside the AMI in PVA's 100 percent working interest acreage. All of the wells were successful.
Production from the Cotton Valley for the third quarter averaged 22.7 MMcfe per day, which was 77 percent higher than the 12.8 MMcfe per day produced in the third quarter of 2006 and 27 percent higher than the 17.9 MMcfe per day produced in the second quarter of 2007. The production increases resulted from the development program in the Cotton Valley and a contribution from a recent acquisition in the Woodlawn Field. Six rigs are currently drilling in the play.
PVA has initiated 20-acre spaced drilling in the Cotton Valley and has drilled two downspaced wells thus far. The results of the two wells drilled to date indicate no drainage from offsetting producing wells and initial flow rates that are consistent with the results of the offsetting wells. PVA expects to drill between three and eight additional downspaced wells during the fourth quarter of 2007. Horizontal drilling in the Lower Bossier and Cotton Valley will be deferred until 2008.
Selma Chalk / Mississippi - In the Selma Chalk play in Mississippi during the third quarter, PVA drilled 20 (19.7 net) development wells. All of the wells were successful except for one (1.0 net) Selma Chalk development well that was plugged and abandoned due to downhole problems encountered while drilling.
Production from the Selma Chalk for the third quarter averaged 21.9 MMcfe per day, which was 29 percent higher than the 16.9 MMcfe per day produced in the third quarter of 2006 and eight percent higher than the 20.2 MMcfe per day produced in the second quarter of 2007. The production increases resulted from the development program in the Selma Chalk and a contribution from a recent acquisition in the Gwinville Field. PVA continues active development of its inventory of opportunities and currently has one vertical rig drilling, with a second rig scheduled to commence horizontal drilling in the near future.
As previously disclosed, PVA drilled two horizontal Selma Chalk test wells, one in the Gwinville Field and one in the Baxterville Field. The well in the Gwinville Field has met performance expectations and, to date, the well in the Baxterville Field has exceeded performance expectations. PVA is encouraged by the application of horizontal drilling in the Selma Chalk and believes that this method, once implemented, will not only accelerate production rates but also will add incremental reserves due to increased effective drainage of the reservoir. PVA's plan is to drill up to two horizontal wells in the Baxterville Field in the fourth quarter with an increase in horizontal drilling activity in 2008.
Mid-Continent Region - In the Mid-Continent region during the third quarter, PVA drilled 10 (4.8 net) wells, including seven (4.0 net) Hartshorne single-lateral HCBM development wells, two (0.7 net) Fayetteville Shale exploratory wells and one (0.1 net) other well. All of the wells were successful.
Production in the Mid-Continent region during the third quarter averaged 13.6 MMcfe per day, which was 130 percent higher than the 5.9 MMcfe per day produced in the third quarter of 2006 and 44 percent higher than the 9.5 MMcfe per day produced in the second quarter of 2007. The production increases resulted from the development program and a contribution from a recent acquisition in the Arkoma Basin. PVA continues active development of the properties it acquired in the Arkoma and Anadarko Basins in 2006 and 2007.
Since the inception of its horizontal Fayetteville Shale exploratory drilling efforts in 2006, PVA has drilled seven (2.9 net) wells in Pope County, Arkansas, with three (2.0 net) PVA-operated wells and four (0.9 net) outside-operated wells. PVA will drill one well in the fourth quarter with additional exploratory drilling planned in 2008 to further evaluate its position in the play.
Early in the fourth quarter, PVA completed drilling of its first horizontal Granite Wash test well in Washita County, Oklahoma, and it is waiting on completion. Additional horizontal drilling in this play is planned in the fourth quarter.
Appalachia - In Appalachia during the third quarter, PVA drilled eight (5.3 net) wells, including five (2.3 net) multi-lateral HCBM development wells and three (3.0 net) conventional wells. All of the wells were successful.
Production in Appalachia during the third quarter averaged 36.7 MMcfe per day, which was four percent higher than the 35.2 MMcfe per day produced in the third quarter of 2006 and seven percent higher than the 34.3 MMcfe per day produced in the second quarter of 2007. Two horizontal rigs are currently drilling HCBM wells.
Early in the fourth quarter, PVA completed drilling of its first horizontal Devonian Shale test well, targeting the Lower Huron section of the shale, and it is waiting on completion. A vertical well was drilled on the same lease, through the Marcellus section, and it is also waiting on completion.
In Appalachia, production decreases associated with the HCBM development program during 2006 and the first quarter of 2007 were reversed during the third quarter of 2007 due to production contributions associated with the current year drilling and positive effects of the dewatering of previously drilled and shut-in HCBM wells. Delays in obtaining drilling permits are continuing to reduce the desired pace of HCBM drilling activity. It is expected that only two or three rigs will continue to drill HCBM wells due to an insufficient inventory of drilling permits. PVA is working to increase its inventory of drilling permits and as sufficient permits are obtained, drilling activity will increase accordingly.
Gulf Coast - In the Gulf Coast during the third quarter, PVA drilled one (1.0 net) successful well in south Texas.
Production in the Gulf Coast during the third quarter of 2007 was 25.7 MMcfe per day, which was 70 percent higher than the 15.1 MMcfe per day in the third quarter of 2006 and 10 percent lower than the 28.7 MMcfe per day in the second quarter of 2007. The increase over the prior year quarter was attributable to exploration success in south Louisiana, while the sequential decrease was due to natural declines.
The increase in production from south Louisiana is associated primarily with multiple discoveries in Bayou Postillion in Iberia Parish, Louisiana, which is producing in excess of 13 MMcfe per day, net to PVA, from six wells. The Cotten Land #2 well, the most recent well in Bayou Postillion, was plugged and abandoned, resulting in approximately $3.5 million of dry hole costs expensed during the third quarter of 2007.
The following table shows PVA's current derivative positions for natural gas and oil production:
Weighted Average Price per MMBtu or Bbl Average ------------------------- Volume Additional Per Day Put Option Floor Ceiling ---------- ---------- ------ ------- (MMBtu) Natural Gas Costless Collars Fourth quarter 2007 11,685 $8.28 $15.78 First quarter 2008 10,000 $9.00 $17.95 Second quarter 2008 10,000 $7.50 $9.10 Third quarter 2008 10,000 $7.50 $9.10 Fourth quarter 2008 10,000 $7.50 $9.10 Natural Gas Three-Way Collars* Fourth quarter 2007 26,370 $5.25 $7.74 $11.14 First quarter 2008 22,500 $5.44 $8.00 $12.64 Second quarter 2008 22,500 $5.00 $7.11 $9.09 Third quarter 2008 22,500 $5.00 $7.11 $9.09 Fourth quarter 2008 22,500 $5.44 $7.70 $11.40 First quarter 2009 20,000 $5.75 $8.00 $12.80 (Bbls) Crude Oil Costless Collars Fourth quarter 2007 200 $60.00 $72.20 Crude Oil Swaps Fourth quarter 2007 300 $69.00
* A three-way collar contract consists of a collar contract plus a put option contract sold by PVA with a price below the floor price of the collar. This additional put requires PVA to make a payment to the counterparty if the settlement price for any settlement period is below the put option price. Combining the collar contract with the additional put option results in PVA's entitlement to a net payment equal to the difference between the floor price of the collar contract and the additional put option price if the settlement price is equal to or less than the additional put option price. If the settlement price is greater than the additional put option price, the result is the same as it would have been with a collar contract only. This strategy enables PVA to increase the floor and the ceiling price of the collar beyond the range of a traditional collar contract while defraying the associated cost with the sale of the additional put option.
2007 Third Quarter Financial and Operational Results Conference Call
A conference call and webcast, during which management will discuss third quarter 2007 financial and operational results for PVA, is scheduled for Thursday, November 1, 2007 at 3:00 p.m. ET. Prepared remarks by A. James Dearlove, President and Chief Executive Officer, will be followed by a question and answer period. Investors and analysts may participate via phone by dialing 1-877-407-9205 five to ten minutes before the scheduled start of the conference call, or via webcast by logging on to PVA's website at www.pennvirginia.com at least 20 minutes prior to the scheduled start of the call to download and install any necessary audio software. A telephone replay of the call will be available until November 15, 2007 at 11:59 p.m. ET by dialing 1-877-660-6853 and using the following replay pass codes: account #286, conference ID #257715. An on-demand replay of the conference call will be available at PVA's website beginning shortly after the call.
Headquartered in Radnor, PA and a member of the S&P SmallCap 600 Index, Penn Virginia Corporation (NYSE:PVA) is an independent natural gas and oil company focused on the exploration, acquisition, development and production of reserves in onshore regions of the U.S., including the Appalachian Basin, the Cotton Valley play in east Texas, the Selma Chalk play in Mississippi, the Mid-Continent region and the Gulf Coast of Louisiana and Texas. PVA also owns approximately 82 percent of Penn Virginia GP Holdings, L.P. (NYSE:PVG), the owner of the general partner and the largest unit holder of Penn Virginia Resource Partners, L.P. (NYSE:PVR), a manager of coal and natural resource properties and related assets and the operator of a midstream natural gas gathering and processing business. For more information, please visit PVA's website at www.pennvirginia.com.
Certain statements contained herein that are not descriptions of historical facts are "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Because such statements include risks, uncertainties and contingencies, actual results may differ materially from those expressed or implied by such forward-looking statements. These risks, uncertainties and contingencies include, but are not limited to, the following: the cost of finding and successfully developing oil and gas reserves; energy prices generally and specifically, the price of crude oil and natural gas; projected demand for crude oil and natural gas; the projected supply of crude oil and natural gas; our ability to obtain adequate pipeline transportation capacity for its oil and gas production; non-performance by third party operators in wells in which we own an interest; competition among producers in the oil and natural gas industry; the extent to which the amount and quality of actual production of our oil and natural gas differs from estimated recoverable proved oil and gas reserves; hazards or operating risks incidental to our business; unanticipated geological problems; the availability of required drilling rigs, materials and equipment; the occurrence of unusual weather or operating conditions including force majeure events; delays in anticipated start-up dates of the our oil and natural gas production; environmental risks affecting the drilling and producing of oil and gas wells; the timing of receipt of necessary governmental permits by us; labor relations and costs; accidents; changes in governmental regulation or enforcement practices; uncertainties relating to the outcome of current and future litigation regarding mine permitting; and risks and uncertainties relating to general domestic and international economic (including inflation and interest rates) and political conditions (including the impact of potential terrorist attacks).
Additional information concerning these and other factors can be found in our press releases and public periodic filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K for the year ended December 31, 2006. Many of the factors that will determine our future results are beyond the ability of management to control or predict. Readers should not place undue reliance on forward-looking statements, which reflect management's views only as of the date hereof. We undertake no obligation to revise or update any forward-looking statements, or to make any other forward-looking statements, whether as the result of new information, future events or otherwise.
Source: Penn Virginia Corporation
Released October 31, 2007