Transcript of "PVA Howard Weil Investor Presentation"
41st Annual Howard Weil Energy ConferenceInvestor PresentationMarch 20, 2013NYSE: PVA
Forward-Looking Statements, Oil and Gas Reserves and DefinitionsForward-Looking StatementsCertain statements contained herein that are not descriptions of historical facts are “forward-looking” statements within the meaning of Section 27A of the SecuritiesAct 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 arenot limited to, the following: the volatility of commodity prices for oil, natural gas liquids and natural gas; our ability to develop, explore for, acquire and replace oil andgas reserves and sustain production; our ability to generate profits or achieve targeted reserves in our development and exploratory drilling and well operations; anyimpairments, write-downs or write-offs of our reserves or assets; the projected demand for and supply of oil, natural gas liquids and natural gas; reductions in theborrowing base under our revolving credit facility; our ability to contract for drilling rigs, supplies and services at reasonable costs; our ability to obtain adequatepipeline transportation capacity for our oil and gas production at reasonable cost and to sell the production at, or at reasonable discounts to, market prices; theuncertainties inherent in projecting future rates of production for our wells and the extent to which actual production differs from estimated proved oil and gasreserves; drilling and operating risks; our ability to compete effectively against other independent and major oil and natural gas companies; our ability to successfullymonetize select assets and repay our debt; leasehold terms expiring before production can be established; environmental liabilities that are not covered by an effectiveindemnity or insurance; the timing of receipt of necessary regulatory permits; the effect of commodity and financial derivative arrangements; our ability to maintainadequate financial liquidity and to access adequate levels of capital on reasonable terms; the occurrence of unusual weather or operating conditions, including forcemajeure events; our ability to retain or attract senior management and key technical employees; counterparty risk related to their ability to meet their futureobligations; changes in governmental regulations or enforcement practices, especially with respect to environmental, health and safety matters; uncertainties relatingto general domestic and international economic and political conditions; and other risks set forth in our filings with the Securities and Exchange Commission (SEC).Additional information concerning these and other factors can be found in our press releases and public periodic filings with the SEC. Many of the factors that willdetermine 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 otherforward-looking statements, whether as a result of new information, future events or otherwise.Oil and Gas ReservesEffective January 1, 2010, the SEC permits oil and gas companies, in their filings with the SEC, to disclose not only “proved” reserves, but also “probable” reserves and“possible” reserves. As noted above, statements of reserves are only estimates and may not correspond to the ultimate quantities of oil and gas recovered. Anyreserve estimates provided in this presentation that are not specifically designated as being estimates of proved reserves may include estimated reserves notnecessarily calculated in accordance with, or contemplated by, the SEC’s latest reserve reporting guidelines. Investors are urged to consider closely the disclosure inPVA’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, which is available from PVA at Four Radnor Corporate Center, Suite 200, Radnor, PA19087 (Attn: Investor Relations). You can also obtain this report from the SEC by calling 1-800-SEC-0330 or from the SEC’s website at www.sec.gov.DefinitionsProved reserves are those quantities of oil and gas which, by analysis of geosciences and engineering data, can be estimated with reasonable certainty to beeconomically producible from a given date forward, from known reservoirs, and under existing economic conditions, operating methods and government regulationbefore the time at which contracts providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether theestimate is a deterministic estimate or probabilistic estimate. Probable reserves are those additional reserves that are less certain to be recovered than provedreserves, but which are as likely than not to be recoverable (there should be at least a 50% probability that the quantities actually recovered will equal or exceed theproved plus probable reserve estimates). Possible reserves are those additional reserves that are less certain to be recoverable than probable reserves (there should beat least a 10% probability that the total quantities actually recovered will equal or exceed the proved plus probable plus possible reserve estimates). “3P” reserves referto the sum of proved, probable and possible reserves. Estimated ultimate recovery (EUR) is the sum of reserves remaining as of a given date and cumulative productionas of that date. 1
PVA Overview• Small-cap domestic onshore E&P company • The past two years have been transformational, as we have diversified our portfolio towards oil and liquids • Very active in the Eagle Ford Shale oil play with excellent results to date • HBP natural gas reserves in East Texas, the Mid-Continent and Mississippi• Executing a strategy of growth in oil and NGL rich plays • Successful drilling results in the Eagle Ford Shale – 69 wells on-line (54 in Gonzales Co. and 15 in Lavaca Co.) • Adding to Eagle Ford drilling inventory – Successful exploratory results to date in Lavaca County – Continued lease acquisition activity – Approximately 300 drilling locations remaining currently • Strategy has resulted in significant growth in EBITDAX and cash operating margins • Proved reserves were approximately 40% oil and NGLs at YE12 (24% at YE11) • Over 60% of 2013 production is expected to be oil and NGLs – Over 85% of 2013 product revenues expected to be oil and NGLs• Focused on improving liquidity • Cash plus revolver availability of $316MM at YE12 • Leverage ratio of ~2.4x at YE12 • 69% of 2013E (midpoint) oil production hedged at weighted average floor/swap price of $96.67 per barrel (WTI) • 68% of 2013E (midpoint) gas production hedged at weighted average floor/swap price of $3.77 per MMBtu (HH) 2
Business Strategy • “Gas-to-Oil” transition • Grew overall oil/NGL production 253% to 8,673 Bbls/day from 2Q10 to 4Q12 − Up 21% from 7,194 Bbls/day in 4Q11 − Oil / NGLs contributed 56% of production and 83% of product revenues in 4Q12 − Daily oil production alone grew 24% from 4Q11 to 4Q12 • Eagle Ford position built from initial 6,800 net acres in August 2010 to 33,000 net acres currently(1) − Up to 366 total well locations, with up to approximately 300 remaining drilling locations − Includes 160 down-spaced locations • Expansion of oil and liquids reserves and drilling inventory • Continued leasing and expansion of Eagle Ford • Exploration of other oil prospects − New ventures team is assessing new high impact oil resource plays • Growth in oil and liquids production and cash flows • Eagle Ford drilling emphasis in 2013, with approximately 88% of CAPEX expected in the play • 38 (28.8 net) Eagle Ford wells in 2013 - 22 (15.2 net) in Gonzales County and 16 (13.6 net) in Lavaca County • Continued focus on optimizing drilling and completion costs in the Eagle Ford • Retain substantial gas assets for eventual price recovery • Haynesville Shale, Cotton Valley and Mississippi Selma Chalk are primarily HBP 3(1) Net acreage in Lavaca County is expected to increase due to non-consents by our partner on initial wells in 17 drilling units.
Value Has Shifted to Oil • In mid-2010, PVA implemented a strategy to transition from dry gas to oil and liquids • Since then, the decrease in gas prices and increase in oil and liquids prices has shifted the market from a “6:1” to a “20:1” liquids-to-gas price environment (25:1 for oil) • Examining revenue growth by commodity type reveals PVA’s true growth in value Perception: “6-to-1” Equivalent Environment Reality: “20-to-1” Price Environment Gas Producer With Little to No Production Growth Oil/NGL Producer With Revenue Growth Pro Forma Production by Commodity Quarterly Revenue by Commodity MBOE per day (1 BOE = 6 Mcf) Pre-Hedging; $MM 20 $90 16 $68 17% 12 44% $45 8 83% 56% $23 4 0 $0 Oil NGLs Base NG Shale NG Oil NGLs GasNote: Pro forma production excludes contributions from South Texas and South Louisiana assets sold in January 2010, Arkoma Basin assets sold in 4 August 2011 and Appalachian assets sold in July 2012. Revenues are actual amounts received, prior to the impact of derivatives.
Strong Margins vs. Peers • EBITDAX has increased significantly since mid-2010 when we shifted our strategy to oil and NGLs • Cash margin per BOE has also improved significantly due to the increase in oil prices and declining operating costs per unit • Eagle Ford cash margin was $79 per BOE in 4Q12(1) Quarterly Adjusted EBITDAX and EBITDAX Margin per BOE Comparative EBITDAX Margins (4Q2012 EBITDAX / BOE)(2) $80 $48 $70 $42 $60 $36 $50 $30 $ per BOE$ Millions $40 $24 $30 $18 $20 $12 $10 $6 $0 $0 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 Adjusted EBITDAX ($MM) Adjusted EBITDAX Margin per BOE Source: Company filings. (1) Excludes regional and corporate G&A expenses. (2) PVA 4Q2012 EBITDAX of $62.3MM per its earnings release. See Appendix for PVA’s reconciliation of EBITDAX. EBITDAX for peers 5 calculated as total revenues less lease operating expenses and cash G&A unless otherwise disclosed by the peer company.
Production Mix and Operating MarginsProduction Mix Over Time Cash Margin Over Time ($/BOE) Realized $53.48 Price $50.25 $5.82 44% $6.88 $1.91 48% $1.78 $38.70 $3.05 $4.68 $2.08 72% $5.28 $4.13 82% $31.92 $1.74 $1.98 $6.42 $4.74 $1.74 $1.80 Cash $4.56 $39.29 Margin 56% $34.11 52% $24.96 28% $17.40 18% FY 2010 FY 2011 3Q 2012 4Q 2012 FY 2010 FY 2011 3Q 2012 4Q 2012 Oil & Condensate Natural Gas Cash Margin LOE G&P and transportation Production taxes Cash G&A (excludes share-based compensation)Note: Cash margin per BOE is defined as total product revenues, excluding the impact of hedges, less direct operating expenses per unit of 6 equivalent production.
Asset Overview Emerging Oil and Liquids-Rich Plays Plus “Option” in Significant Gas Plays Marcellus Mid-Continent YE12 Proved reserves: 0.5 MMBOE YE12 Proved reserves: 12.4 MMBOE % Gas: 100% % Oil/NGLs: 47% % PDP: 23% % PDP: 79% 2012 Production: 43 MBOE 2012 Production: 1,211 MBOE PA Cotton Valley YE12 Proved reserves: 39.6 MMBOE % Oil/NGLs: 34% % PDP: 34% 2012 Production: 882 MBOE OK Eagle Ford MS YE12 Proved reserves: 26.2 MMBOE % Oil/NGLs: 90% TX % PDP: 37% Selma Chalk 2012 Production: 2,334 MBOE YE12 Proved reserves: 17.6 MMBOE % Gas: 100% % PDP: 54% Haynesville 2012 Production: 847 MBOE YE12 Proved reserves: 17.2 MMBOE % Gas: 86% Penn Virginia % PDP: 26% YE12 Proved reserves: 113.5 MMBOE Oil / Liquids 2012 Production: 454 MBOE % Oil/NGLs: 40% % PDP: 41% Wet Gas 2012 Production: 5,771 MBOE Dry Gas 7Note: Based on 1/29/13 operational release and YE12 reserve report prepared by Wright & Company, Inc.
Eagle Ford Shale Summary of PVA’s Positioning • 41,900 gross (≥33,000 net) acres in Gonzales and Lavaca Counties, TX(1) • Operator in Gonzales with 83% WI • Operator in Lavaca with a ~94% WI(1) • Avg. IP/30-day rates of 972/651 BOEPD(2) • Gonzales type curve EUR of ≥400 MBOE(2) • Lavaca type curve of EUR of ≥500 MBOE(2) • Proved reserves increased from 10 MMBOE at year-end 2011 to 26 MMBOE at year-end 2012 • 3P reserves increased from 25 MMBOE at year-end 2011 to 71 MMBOE at year-end 2012 • 80-85% oil, 5-10% NGLs and 5-10% gas, post processing; crude oil is 48o or less API gravity − Weighted average oil gravity – 44o • Reduced proppant and chemical costs • 69 wells producing (15 in Lavaca County) • Objective is to lower well costs by 10-15% in 2013 • Up to ~300 remaining drilling locations • Initial positive down-spacing test of 3-well pad • Includes 160 down-spaced locations • Rigs, infrastructure in place • Dedicated rigs and frac crew • Gas gathering and processing in place • Receiving premium LLS base pricing(1) Net acreage in Lavaca County is expected to increase due to non-consents by our partner on initial wells in 17 drilling units. 8(2) Based on 1/29/13 operational release and YE12 reserve report prepared by Wright & Company, Inc.
Eagle Ford Shale Operators in Eastern Volatile Oil and Condensate Rich Gas Windows(1) Volatile Oil Condensate Gonzales Rich GasEFS Operators PVA BHP San Antonio CHK Wilson Lavaca COG Bexar COP CRK CRZO EOG Atascosa FST Hunt MHR MRO Victoria MUR NFX PXD PXP SFY Goliad Texas STO TLM Bee McMullen Live Oak 9 (1) Based on latest company presentations, as well as industry publications. Some industry publication information may be out of date.
Eagle Ford Shale Premier Acreage Position in Volatile Oil Window Eagle Ford Shale Wellhead Production – Gonzales Co.Notable PVA Results IP Rates IP Rates IP Rates IP Rates IP Rates PVA Well Name (BOEPD) PVA Well Name (BOEPD) PVA Well Name (BOEPD) PVA Well Name (BOEPD) PVA Well Name (BOEPD) Gardner 1H 1,247 Hawn Holt 13H 1,399 Munson Ranch 6H 1,808 Henning 1H 1,115 McCreary 1H (Lavaca) 1,036 Hawn Holt 9H 1,847 Hawn Holt 15H 1,298 Rock Creek Ranch 1H 1,257 Effenberger 1H (Lavaca) 922 Matias 1H (Lavaca) 1,013 Hawn Holt 10H 1,188 Munson Ranch 1H 1,921 Schaefer 3H 1,129 Schacherl 1H (Lavaca) 1,277 Arledge Ranch 1H 1,117 Hawn Holt 11H 1,190 Munson Ranch 3H 1,538 Munson Ranch 5H 1,164 Rock Creek Ranch 10H 1,036 Freytag 1H (Lavaca) 1,195 Hawn Holt 12H 1,495 Munson Ranch 4H 1,416 D. Foreman 1H 1,202 Henning 2H 1,002 Technik 1H (Lavaca) 1,445 10Note: Wellhead rates (pre-processing); production “windows” are PVA’s approximation.
Eagle Ford ShaleDetailed Map of Primary Eagle Ford Shale Operating Area, With New Lavaca County Wells Energy Transfer Pipelines Penn Virginia Pipelines Barazza #1H Freytag #1H Pavlicek #1H Schacherl #1H Vana #1H Targac #1H Gonzales Cortez Rabb #1H County Smith #1H Effen- Kleihege #1H berger McCreary #1H #1H Technik #1H Leal #1H Cannonade Sralla Ranch #1H Matias #1H Shiner Rock Creek Ranch Lavaca County 0 10,000 FEET 11
Eagle Ford Shale Strong Early Results in Lavaca County• We currently have 15 Avg. Daily Lavaca wells on line Post- 30-Day 30 –Day Post- Post-Proc. Post-Proc. Wellhead Processing Wellhead Processing No. of Initial Lateral Cumulative Cum. Prod. /• The average wellhead IP IP Rates IP Rates IP Rates IP Rates Frac Choke Length Production Days Online Well Name (BOEPD) (BOEPD)(1) (BOEPD) (BOEPD) (1) Stages Size (feet) (MBOE) (1) (MBOEPD)(1) and 30-day rates are 939 and 644 BOEPD Effenberger 1H 922 954 778 816 20 12/64” 4,950 131.9 395 / 334• Excluding two wells with Vana 1H 709 731 498 526 13 16/64” 3,192 66.4 201 / 330 issues, the averages were Schacherl 1H 1,277 1,329 709 757 22 14/64” 5,453 113.4 392 / 289 978 and 670 BOEPD(2) Sralla 1H 827 851 698 725 18 12/64” 4,453 97.2 390 / 249• Including estimated post- McCreary 1H 1,036 1,112 709 767 18 13/64” 4,453 73.5 340 / 216 processing NGL barrels, net Pavlicek 1H 663 700 450 490 20 14/64” 4,870 25.9 142 / 183 of gas shrink, the averages Smith 1H 943 1,032 629 689 18 16/64” 4,459 62.4 383 / 163 were 1,043 and 726 BOEPD(1) Matias 1H 1,013 1,061 652 712 20 12/64” 4,453 58.1 480 / 121• Have tested most of our Leal 1H 832 921 725 814 17 13/64” 4,201 73.1 537 / 136 acreage at this point and Freytag 1H 1,195 1,247 689 735 25 14/64” 4,952 47.5 461 / 103 are confident in the Kleihege 1H 629 690 515 563 26 16/64” 5,155 42.7 459 / 93 prospectivity of the total Raab 1H 1,046 1,146 832 913 22 17/64” 5,450 52.0 666 / 78 Lavaca County acreage Barraza 1H 680 725 474 509 16 15/64” 3,952 26.9 414 / 65• Our “major” partner has Technik 1H 1,445 1,575 789 869 18 25/64” 4,452 29.3 793 / 37 elected to go non-consent on the WI in the last 10 Targac 1H 865 919 520 566 16 14/64” 4,300 23.1 525 / 44 wells, but will retain an Averages 939 999 644 697 19.3 15/64” 4,583 61.6 439 / 163 overriding royalty interest Adj. Averages(2) 978 1,043 670 726 19.7 15/64” 4,668 63.9 480 / 148• Currently believe well quality and reserves are higher on Lavaca County acreage due to increased pressure gradients and ability to drill longer (1) Assumes 124.45 barrels of NGLs per MMcf of gas. Assume s 32.6% fuel and processing shrink for wet gas. laterals (2) Excludes the Vana 1H (short lateral) and Pavlicek 1H (completion issues) from the averages.
Eagle Ford Shale Positive Trend: Volumes Up• During 2011 and into early 2012, we quickly ramped up the Eagle Ford Shale, and expect to increase production again during 2013• Approximately 91% of sales volumes are liquids - primarily crude oil• Oil is sold into the Gulf Coast LLS market through multiple purchasers at premium pricing to WTI 2011-2012 Net Quarterly Sales Volumes by Commodity (MBOE) 54 42 42 70 52 50 31 34 25 29 20 23 502 490 508 460 344 300 82 24 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 Oil and Condensate NGLs Natural Gas 13
Eagle Ford Shale Compelling Economics & Value at Varying Oil PricesGonzales County Lavaca County(1) • Assumptions • Assumptions • Longer lateral lengths in 2013 vs. PUD assumption • Longer lateral lengths in 2013 vs. PUD assumption • 460 MBOE EUR type curve (80 Bbls of oil per foot) • 590 MBOE EUR type curve (80 Bbls of oil per foot) • Drilling and completion (D&C) costs of $9.1MM • Drilling and completion (D&C) costs of $10.1MM • Key takeaways • Key takeaways • 40%-52% IRRs and BTAX PV-10 of $5.6 - $7.4MM per • 37%-52% IRRs and BTAX PV-10 of $6.1 - $8.2MM per well assuming a flat $90 per barrel WTI oil price well assuming a flat $90 per barrel WTI oil price • BTAX PV-10 breakeven WTI oil pricing of $47 to $57 • BTAX PV-10 breakeven WTI oil pricing of $47 to $57 per barrel per barrel 14 (1) Based on YE12 PUDs, excluding short-length lateral wells, applied to longer length laterals in 2013 program.
Eagle Ford Shale Multi-Year Drilling Inventory • Due to acreage acquisitions and leasing efforts over the past two years, we have expanded our acreage position to 41,900 gross (33,000 net) acres primarily in the volatile oil window(1) • We also have a multi-year inventory of up to 297 additional drilling locations • Down-spacing has added 160 potential locations to our inventory • Locations will vary over time in terms of lateral length, frac stages, spacing and geology • Recent successful wells in the southern and eastern portions of our Lavaca acreage have further “de- risked” our inventory • Unitizations with other industry participants and continued leasing are expected to yield additional locations Producing Remaining Total Well Gross Net Acres / Area Wells Locations Locations Acreage Acreage(1) Location Gonzales 54 190 244 26,209 21,236 107 Lavaca 15 107 122 15,670 11,751 128 Totals 69 297 366 41,879 32,987 114 15(1) Net acreage in Lavaca County is expected to increase due to non-consents by our partner on initial wells in 17 drilling units.
Eagle Ford Shale Pro Forma PVA Has a Healthy Inventory of Drilling Locations • Total inventory of up to 790 gross undrilled locations (609 horizontal locations) • Up to 349 gross horizontal drilling locations in the Eagle Ford and Granite Wash • Significant upside in inventory of “gassy” locations Gross Undrilled Average Working Gross EUR Play Locations Interest (MBOE/Well)(1) Eagle Ford (Gonzales) 190 83% 394 Eagle Ford (Lavaca) 107 94% 513 Granite Wash 52 18% 809 Cotton Valley 78 71% 903 Haynesville 78 77% 869 Cotton Valley (vertical) 181 71% 172 Selma Chalk 104 96% 302 Totals 790 16(1) Median gross EUR for all PUD locations.
Financial Strategy Crude Oil Hedges (Swaps and Collars)(1)• Penn Virginia employs a conservative financial strategy • Capital spending driven primarily by rates of return across all operating areas • Capital budget focused on high return, oil / liquids areas • Margins and EBITDAX projected to increase • Maintain conservative balance sheet • Continue to increase senior credit facility borrowing base through reserve additions from organic growth to maximize liquidity • Target net debt / EBITDAX of less than 3.0x by year-end 2013 (~2.4x at YE12) • Maintain conservative financial ratios with recent common Natural Gas Hedges (Swaps and Collars) (1) and preferred issuances, along with cash flow growth and asset sales • Maintain sufficient liquidity to provide capital to continue drilling and our transition to oil • Maintain an active oil-focused hedging program to support economic returns and ensure strong coverage metrics • Hedges in place to protect cash flow and well economics • Plans to layer in additional oil and gas hedges as prices permit 17 (1) As of 3/13/13.
Financial Liquidity and Leverage• Penn Virginia has taken steps recently to ensure that its financial liquidity is more than sufficient to fund upcoming operations during 2012 and 2013 • Several liquidity events during 2012 have increased financial liquidity from less than $400MM to over $550MM• In addition, financial leverage has decreased markedly from over 3.0x EBITDAX to 2.4 EBITDAX at year-end 2012 Financial Liquidity and Leverage $600 3.6x $500 3.3x $400 3.0x $300 2.7x $200 2.4x $100 2.1x $0 1.8x 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 Cash Revolver Availability Excess Debt Capacity Debt-to-EBITDAX 18Note: dollars in millions; excess debt capacity assumes leverage up to 4.5x EBITDAX
Investment Highlights• Strategic balance between oil / liquids and natural gas• Strengthened balance sheet and liquidity• Core position in the volatile oil window of the Eagle Ford Shale• Multi-year inventory of attractive drilling opportunities• Optionality of natural gas assets has been retained 19