Penn Virginia expands oil holdings in Texas shale

Posted: April 06, 2013

Penn Virginia Corp., which has a long history in the coal and gas business, is becoming more oily.

The Radnor energy company announced that it was dramatically expanding its holdings in the oil-rich Eagle Ford Shale in south Texas with the acquisition of 19,000 acres of prospective and producing leases for $401 million.

The company agreed to buy the leases from Magnum Hunter Resources Corp. The acreage contains estimated proved reserves of 12 million barrels of oil equivalent. It would increase Penn Virginia's Eagle Ford position to 54,000 net acres, and drilling locations from 295 to 640.

"We look at this as a transformational acquisition, which gives us a fairly extensive footprint in what we consider one of the premier resource plays domestically," H. Baird Whitehead, the company's chief executive, told analysts.

Investors were not smitten. Penn Virginia's stock closed Thursday at $3.68 on the New York Stock Exchange, down 16 cents, or 4.2 percent. Since the announcement Wednesday, the stock is off 5.6 percent.

James W. Dean, vice president of corporate development, said he believes some of the selling was caused by stop-loss orders as the shares hit a 52-week low of $3.56 Thursday before rebounding by the close.

"It may be more about no confidence in the stock than in the deal," he said.

The acquisition will mostly be financed with new debt, though Penn Virginia has the option of issuing 10 million shares of common stock to Magnum Hunter at $4.00 per share.

The deal narrows Penn Virginia's focus on the Eagle Ford, a prolific shale that is being developed with similar hydraulic-fracturing techniques that opened up formations such as the Marcellus Shale.

When Penn Virginia first bought acreage in the Eagle Ford, it paid $4,285 an acre. Wednesday's deal amounts to more than $21,000 an acre.

This year, oil is expected to account for 55 percent of the company's business, up from 17 percent in 2011, said Steven A. Hartman, chief financial officer.

Contact Andrew Maykuth

at 215-854-2947, @Maykuth or

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