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Restructured Penn Virginia to Ply Eagle Ford Again

Penn Virginia Corp., which completed a Chapter 11 bankruptcy restructuring on Sept. 12, said it will restart its Eagle Ford Shale drilling program by the end of November. Plans are to drill 16 to 19 net lower Eagle Ford wells with 13 to 16 net wells turned to sales during 2017.

The restructuring helped lower fixed and variable costs, said COO John Brooks. "We also continue to improve our drilling and completion techniques and overall ability to develop our high-value acreage position," he said. "Our strong balance sheet post-restructuring, combined with our significantly improved liquidity and low-cost drilling inventory of oil-rich acreage in Gonzales and Lavaca Counties [TX], provide Penn Virginia with a considerable runway to execute on our high rate-of-return drilling locations at current commodity prices."

Brooks said the company's most recent lower Eagle Ford slickwater completion design, which targets pumping 2,000 pounds of proppant per foot of lateral has performed "exceedingly" well. "In fact, the Hawg Hunter three-well pad, where we used this technique most recently, is our highest-producing pad to date. These three wells' combined 24-hour IPs (initial production) totaled 11,532 boe/d, with a 30-day IP rate of 5,583 boe/d and 561,000 boe produced in their first eight-and-a-half months, of which 90% was oil. We intend to apply the same slickwater completion methodology to the two upcoming Sable and Axis pads, and we anticipate continued advancements to our completion design."

The company plans to run a one- to two-rig program during 2017 and operate within cash flow. "We plan to concentrate our activity within our two-string, lower Eagle Ford area of development within Gonzales County and northwestern Lavaca County," Brooks said. "We also plan to test our slickwater completion methodology down-dip in our three-string lower Eagle Ford higher-pressured acreage as well as the upper Eagle Ford, which is prevalent across our acreage. We are paying attention to results and activity by our competitors and remain optimistic about the potential of the area."

Operating income in the third quarter was $1.1 million in the bankruptcy "successor" period with a loss of $7.7 million in the "predecessor" period for a combined operating loss for the third quarter of $6.6 million.

Upon emergence from bankruptcy, Penn Virginia entered into a new $200 million revolving credit facility and received $50 million of proceeds in connection with a rights offering. It provides for a revolving commitment and has an initial borrowing base of $128 million. As of Sept. 30, Penn Virginia's revolving credit facility had a balance of $54.4 million, reflecting liquidity at the end of the third quarter of $84.1 million including $14.0 million in cash. As of Nov. 11, the company's liquidity was $96.6 million, with $39.0 million drawn on its revolving credit facility and $7.6 million of cash.

Third quarter production from Eagle Ford operations was 889,000 boe, or 9,659 boe/d. About 75% was crude oil, 15% was natural gas liquids and 10% was natural gas. Production from Eagle Ford operations was 91% of total company production for the third quarter and was derived from 301 operated and 36 outside-operated legacy wells. The company did not drill or complete a well during the third quarter; the last completed well was brought to sales last February.

Reflecting improvements to well design, operational efficiencies and lower industry oil field service costs, the Company estimates gross well costs for a 6,000-foot lateral, 24-stage well with two-strings of casing in the lower Eagle Ford to be $4.8 to $5.0 million. This is estimated to yield an approximate 50% rate of return at $50 WTI oil price and $3.00 Henry Hub natural gas price. At $40 WTI oil price, these wells still support a rate of return of just over 20%, the company said. This estimated gross well cost (including facilities cost) is about 10% to 15% lower than a year ago for the same design, Penn Virginia said.

For the remainder of 2016, Penn Virginia has launched a one-rig development program and has scheduled to complete the three-well Sable pad and drill the three-well Axis pad. In 2017, the company plans to drill 16 to 19 net wells, with 13 to 16 net wells turned to sales by the end of 2017. Management expects that 85% of the company's $95 million to $115 million planned 2017 expenditures will be directed to development drilling and completion expenditures under this program.

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