Penn Virginia Corporation Target Price $ 7.50

PVA : NYSE : US$6.47
Target: US$7.50

Penn Virginia Corporation is an exploration and production company with operations in Texas, the Mid- Continent, Appalachia and Mississippi.
All amounts in US$ unless otherwise noted.

Investment recommendation
PVA has been successfully transitioning to a liquids-focused company while retaining its leverage to an improvement in natural gas prices. PVA has built a sizeable position in the volatile oil window of the Eagle Ford (EF) Shale for a company its size and has generated solid results with the drillbit while bringing costs down at the same time.
Investment highlights
 PVA is executing in the EF with 30-day rates on the past 18 wells averaging 787 Boe/d and costs per frac stage coming down. Pad drilling and zipper fracs are generating increased productivity and further cost reductions.
 The company continues to build its EF position, which at last count was 62.3K net acres and still growing. At the current drill pace (six rig program), PVA has a ~10-year inventory of wells, with downspacing providing future potential for increased locations.
 Given the company’s increased position in the EF and the consistency of its results, we are increasing our price target to $7.50 from $6.50, which represents a narrower 20% discount to our $9.34 NAV vs. the prior discount of 30%.
 As of June 30, PVA had ~$299M in total liquidity. The $350M borrowing base is expected to increase to ~$400M by YE13.
Liquidity is likely to be enhanced further by non-core assets sales. Trading liquidity was improved and an overhang removed by Magnum Hunter’s recent sale of 10M shares of PVA stock


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