PVA : NYSE : US$6.47
Penn Virginia Corporation is an exploration and production company with operations in Texas, the Mid- Continent, Appalachia and Mississippi.
All amounts in US$ unless otherwise noted.
ATTRACTIVE EAGLE FORD PLAY; RAISING PRICE TARGET
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.
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