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Penn Virginia (NYSE: PVA) Bets on Eagle Ford

Written By Jason Stutman

Posted May 29, 2013

As production in the Eagle Ford continues to expand, several players in the area are headed for success. With the massive amount of oil coming out of this shale play recently, it’s those who decide to dig in deep who will have the most to gain.

Penn Virginia Corporation (NYSE: PVA) is shaping up to be one of these players through recent demonstrations of confidence in the Eagle Ford.

The company just announced on Tuesday that it would increase its borrowing base to $350 million. Penn Virginia Corporation’s bank group voted unanimously to increase the base 27 percent from a previous base of $275 million.

The increase in borrowing base can be attributed to Penn Virginia Corporation’s acquisition of additional Eagle Ford Shale reserves. The company acquired $400 million in assets from Magnum Hunter Resources Corporation (NYSE: MHR) in April.

It can also be attributed the company’s success in its Eagle Ford drilling program. Penn Virginia Corporation showed an increase in oil production and revenues, while showing a massive $78.1 million decrease in operating cost from the previous quarter.

The bump in borrowing base will increase liquidity and allow for “attractive borrowing rates,” according to Penn Virginia Corporation President H. Baird Whitehead. The company is betting on the Eagle Ford and plans to significantly increase its presence in the area.

The additional liquidity will drive expansion in the Eagle Ford now that Penn Virginia Corporation has 645 drilling locations after the MHR acquisition mentioned above. The company estimates that with six operational rigs, it now has an eight-year drilling inventory in the Eagle Ford.

Currently, Penn Virginia Corporation has five operational rigs in the Eagle Ford. It announced the addition of a sixth rig, to be expected mid-year 2013.

Penn Virginia Corporation estimates 2013 oil production will increase anywhere between 60 and 78 percent from 2012 rates. Considering the massive success of the Eagle Ford as of late, this could be a conservative estimate.

The Eagle Ford is one of the greatest economic developments in the United States. It has had a $60 billion impact on the surrounding South Texas economy and is expected to bring in $30 billion in investments in 2013.

The shale play has seen record oil production and continues to exceed expected production rates each year. In 2010, we were looking at about 15 thousand barrels per day. Today, that number is closer to 500 thousand bbl/d.

Much of this success can be attributed to the geography of the Eagle Ford. The shale play has a high carbonate percentage that makes the shale more brittle and easier to perform hydraulic fracturing. The Eagle Ford is also quite large at about 400 by 50 miles.

There was plenty of speculation last year that production would plateau, but the numbers are now showing a 77 percent increase in oil production from March 2012 to March 2013.

And PVA isn’t the only company banking on the Eagle Ford. The Eagle Ford has become the single most active shale play in the world, with a current rig-count of 264 and over 200 active operators.

At this rate, it won’t be long before the Eagle Ford catches up to the Bakken, even if the North Dakota shale play continues breaking records at over 780 thousand barrels per day. In either case, I remain bullish on both plays.


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