Penn Virginia Sets Record at 942 Bcfe for Year-End Reserves

Penn Virginia reported record levels of proved oil and gas reserves and production and provided an update of its oil and gas operations, including full-year and fourth quarter 2009 results, guidance and liquidity.

Full-Year and Fourth Quarter 2009 Highlights

Operational results for our oil and gas segment for the year ended December 31, 2009 included the following:

Record year-end proved oil and gas reserves of 942 billion cubic feet of natural gas equivalent (Bcfe), an increase of three percent over 916 Bcfe at year-end 2008;

  • Record oil and gas production of 51.0 Bcfe, an increase of nine percent over 46.9 Bcfe in 2008;
  • Pro forma to exclude production from Gulf Coast assets that were sold in January 2010, oil and gas production was 45.2 Bcfe, an increase of 13 percent over 39.9 Bcfe in 2008;
  • Reserve replacement ratio, excluding price revisions, of 285 percent at a cost of $1.18 per thousand cubic feet of natural gas equivalent (Mcfe); and
  • Oil and gas capital expenditures of approximately $172 million, including approximately $143 million for drilling and completion activities to drill 32 (20.7 net) wells, with a 96 percent success rate.

Operational results for our oil and gas segment during the fourth quarter of 2009 included the following:

  • Oil and gas production of 11.3 Bcfe, as compared to 13.2 Bcfe in the fourth quarter of 2008;
  • Pro forma to exclude production from Gulf Coast assets, oil and gas production was 10.3 Bcfe, as compared to 11.1 Bcfe in the fourth quarter of 2008; and
  • Oil and gas capital expenditures of approximately $28 million, including approximately $19 million for drilling and completion activities to drill five (2.3 net) wells, with one (0.4 net) successful well and four (1.8 net) wells waiting on completion.

Management Comment

A. James Dearlove, President and Chief Executive Officer, said, "During 2009, we were able to achieve a record level of production and grew our proved reserves in spite of sharply lower natural gas prices and capital expenditures that were less than a third of those incurred in 2008.

"As the natural gas price environment appears to have stabilized in late 2009 and early 2010, we began to increase our drilling activity in two core areas, the Granite Wash and the Lower Bossier (Haynesville) Shale, which deliver solid returns. As the result of this resumed drilling, and assuming gas prices do not decrease significantly again, we expect to reverse recent quarterly production declines and deliver sequential production growth during 2010, setting the stage for more meaningful growth in 2011. We also bolstered our cash liquidity during 2009 and early 2010 with new financing and divestitures, providing more liquidity than needed to conduct our planned activities. While we expect higher levels of capital expenditures in 2010 to support our plan, we will continue to monitor natural gas prices and will remain flexible as to our spending levels as 2010 progresses.

"We have a multi-year inventory of high-quality drilling projects in some of the best domestic unconventional and resource plays and we have ample capital resources to develop these projects at the appropriate pace depending on market conditions. Our horizontal drilling success and increased production in these plays over the past two years has positioned us for relatively low-risk, high-return growth in both production and reserves in coming years."

Full-Year 2010 Guidance and Liquidity Updates

Full-year 2010 guidance and liquidity highlights are as follows:

  • Production guidance of 47.0 to 51.0 Bcfe, unchanged as compared to previous guidance, and representing a six to 13 percent increase over 2009 production of 45.2 Bcfe, pro forma for production from Gulf Coast assets that were sold in January 2010;
  • Oil and gas capital expenditures guidance of $375 to $425 million, as compared to a range of $300 to $400 million of previous guidance; and
  • Approximately $400 million of current financial liquidity comprised of cash on hand and availability under our revolving credit facility.

As discussed further in our operational update below, currently anticipated oil and gas capital expenditures for 2010 include approximately $300 million for drilling wells in our horizontal Granite Wash, Lower Bossier Shale, Selma Chalk and Cotton Valley development plays and to test wells on our Marcellus shale leasehold position. In addition, we plan to spend approximately $80 million for leasehold acquisition, primarily in the Marcellus Shale and Granite Wash plays. We plan to release additional 2010 guidance details in a separate fourth quarter and full-year 2009 financial results press release on February 10, 2010.

2009 Proved Reserves, Production and Capital Expenditures

Proved Reserves

Proved reserves increased three percent to a record 942 Bcfe at year-end 2009 from 916 Bcfe at year-end 2008. Natural gas comprised approximately 83 percent of year-end proved reserves and 46 percent of the reserves were proved developed. Excluding price revisions, which reduced reserves by 63 Bcfe, we replaced 285 percent of our 2009 production by adding approximately 145 Bcfe of proved reserves from extensions, discoveries and additions, net of other revisions. The reserve increases were primarily attributable to the Granite Wash, Lower Bossier Shale and Selma Chalk, with decreases in the Cotton Valley and royalty properties in Appalachia. Capital expenditures related to exploration and development, as well as leasehold acquisition, were approximately $172 million, or $1.18 per Mcfe of proved reserves added, excluding price revisions. Pro forma for the Gulf Coast divestiture, proved reserves increased four percent and, excluding price revisions, our reserve replacement ratio was 321% and our reserve replacement cost was $1.18 per Mcfe.



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