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Penn Virginia Third Quarter 2020 Results

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   |    Friday,November 06,2020

Penn Virginia Corp. announced its financial and operational results for the third quarter 2020.

Recent Highlights:

• Entered into strategic agreements with certain affiliates of Juniper Capital Advisors, L.P. ("Juniper") whereby Juniper would acquire equity in Penn Virginia for (1) a cash investment of $150 million and (2) the contribution of $38.4 million of complementary oil and gas assets;
• Generated net cash provided by operating activities of $61 million and free cash flow ("FCF")⁽¹⁾ of $34 million for the third quarter of 2020;
• Sold 18,383 barrels of oil per day ("BOPD") and 24,295 barrels of oil equivalent per day ("BOEPD") for the third quarter of 2020;
• Realized oil price for the third quarter of 2020 of $48.28 per barrel including hedge settlements;
• Reported net loss of $243 million (includes a non-cash impairment of oil and gas properties of $236 million and non-cash unrealized losses on derivatives of $7 million), or $16.03 per share, and adjusted net income⁽²⁾ of $17 million, or $1.14 per diluted share, for the third quarter of 2020;
• Generated adjusted EBITDAX⁽³⁾ of $64 million for the third quarter of 2020;
• Reduced debt by $35 million; and
• Recorded a mark-to-market value of the Company's commodity hedge position of approximately $27.8 million as of November 4, 2020.

Darrin Henke, President and CEO, said: "Generating free cash flow is a top priority for Penn Virginia. To achieve that goal, we continue to focus on driving down our capital costs, increasing operational efficiencies, and protecting our margins by prudent risk management. During the third quarter, we generated significant free cash flow, and we judiciously used that cash to reduce our outstanding debt. Given our Gulf Coast pricing, low-cost structure, strong hedge positions, and resumption of our drilling program, we anticipate living within cash flow in the fourth quarter."

Mr. Henke continued, "Our history of solid performance and premier asset base in the Eagle Ford make Penn Virginia an attractive investment opportunity as evidenced by the recently announced pending transaction with Juniper. Once completed, the transaction will immediately improve the Company's balance sheet as it will allow us to more than double our equity market capitalization, pay down well over $100 million of debt, extend the maturity of our second-lien term loan by two years to September 2024, and reduce annual interest expense by an estimated 20%. We are also excited about the opportunities provided by folding in Juniper's adjacent acreage, which includes complementary oil and gas assets that add production, cash flow, and additional drilling locations. Finally, this transaction will allow us to more effectively maneuver through a potential "lower for longer" oil price environment. As we have shown consistently throughout 2020, we strive to leverage our robust hedge book to mitigate lower oil prices while maintaining significant upside exposure to an eventual oil price recovery. We look forward to working closely with the Juniper team as we continue to focus on long-term value creation for all of our shareholders."

Third Quarter 2020 Operating Results

Total sales volumes for the third quarter of 2020 were 2.24 MMBOE, or 24,295 BOEPD (76% crude oil). During the third quarter of 2020, the Company did not spud any wells but turned to sales five gross (4.8 net) wells.

Third Quarter 2020 Financial Results

Operating expenses were $300.0 million (includes a non-cash impairment of oil and gas properties of $236.0 million), or $134.23 per barrel of oil equivalent ("BOE"), in the third quarter of 2020. Total cash direct operating expenses, which consist of lease operating expenses ("LOE"), gathering, processing, and transportation ("GPT") expenses, production and ad valorem taxes, and cash general and administrative ("G&A") expenses, were $26.2 million, or $11.73 per BOE, in the third quarter of 2020. Total G&A expenses for the third quarter of 2020 were $3.84 per BOE, which included $2.7 million of non-cash share-based compensation and non-recurring organizational restructuring costs, of which $0.8 million was non-cash. For the third quarter of 2020, adjusted cash G&A expenses⁽⁴⁾, which excludes non-cash share-based compensation and non-recurring G&A items, were $2.65 per BOE. LOE was $3.70 per BOE for the third quarter of 2020.

Net loss for the third quarter of 2020 was $243.4 million (includes a non-cash impairment of oil and gas properties of $236.0 million and non-cash unrealized losses on derivatives of $6.9 million), or $16.03 per share, compared to a net income of $54.4 million, or $3.59 per diluted share, in the third quarter of 2019. Adjusted net income⁽²⁾ was $17.3 million, or $1.14 per diluted share, in the third quarter of 2020 versus $29.5 million, or $1.94 per diluted share in the third quarter of 2019.

Adjusted EBITDAX⁽³⁾ was $63.7 million in the third quarter of 2020, compared to $86.7 million in the third quarter of 2019, down primarily due to the effect of lower oil sales volumes and oil prices.

During the third quarter of 2020, the Company incurred $8.0 million of capital expenditures, of which 89% was associated with drilling and completion capital.

As of September 30, 2020, the Company had a net debt to LTM Adjusted EBITDAX ratio of approximately 1.66x⁽⁵⁾. As of October 30, 2020, the Company had $314.4 million outstanding on its credit facility and $51.2 million of liquidity.

Acreage

As of September 30, 2020, the Company had approximately 98,300 gross (86,200 net) acres. Approximately 93% of Penn Virginia's acreage is held by production.

Outlook

The table below sets forth the Company's operational and financial guidance:

D&C capital expenditure guidance anticipates spudding approximately 8.5 net wells and completing approximately four net wells. Turn-in line dates may not occur until the beginning of the first quarter of 2021. The Company will monitor the commodity price environment, given recent volatility, and may revise its capital spending plans.

Juniper Transaction Overview

On November 2, 2020, Penn Virginia entered into agreements with Juniper whereby Juniper would acquire 59% of the equity in Penn Virginia's new structure in exchange for: (1) a cash investment of $150 million at $8.75 per share, a 13% premium to the Company's closing share price on November 2, 2020 and (2) a contribution of complementary oil and gas assets valued at approximately $38.4 million. Juniper will make its investment in Penn Virginia through an up-C structure, which will be implemented at the closing of the transaction. As part of the transaction, Juniper will be restricted from selling any of its equity securities in Penn Virginia for six months following the closing of the transaction.

Penn Virginia expects to use $50.0 million of the cash proceeds to pay down and restructure its second-lien term loan (balance of $200.0 million as of October 30, 2020), with the balance of the cash proceeds used to significantly reduce the amount outstanding under the Company's credit facility (balance of $314.4 million as of October 30, 2020) and to pay transaction fees and expenses.

Following the closing, Edward Geiser, Juniper's Managing Partner, will serve as Penn Virginia's Chairman of the Board, and Juniper will appoint four additional members to the nine-member Board. Darrin Henke, Penn Virginia's President and Chief Executive Officer, and the other members of Penn Virginia's senior management are expected to continue in their roles, and the Company's current directors, including Mr. Henke, will remain on the Board immediately following the closing.

In connection with the closing of the transaction, holders of Penn Virginia's second-lien term loan have agreed to extend the maturity date from September 2022 to September 2024, in addition to other modifications to the term loan agreement.

The transaction is expected to close in the first quarter of 2021, subject to the satisfaction of customary closing conditions, including obtaining the requisite shareholder and regulatory approvals as well as approval under the Company's revolving credit facility. For additional information, please read the Company's Current Report on Form 8-K filed on November 5, 2020.