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Penn Virginia Lowers Spending, Maintains 'Ample' Drilling Locations

Erosion in natural gas and oil prices and continued uncertainty in the markets led onshore producer Penn Virginia Corp. on Friday to announce plans to reduce 2009 capital spending. It also lowered 2009 production guidance.

Capital spending now is set at $210-220 million, compared with $225-250 million announced earlier this year. Penn Virginia expects production to hit 48-50 Bcfe, or 131.5-137 MMcfe/d. It previously set annual output guidance at 51-52 Bcfe.

"In February we reported strong results and growth for 2008, however, 2009 has become a much more challenging year for us and the energy industry as a whole," said CEO A. James Dearlove. "As a result, we have elected to take a very cautious approach to our capital spending plans in 2009.

"We continuously monitor the commodity price environment as it impacts our financial liquidity and will be flexible with our capital spending plans going forward," said the CEO. "Despite the reduced drilling and completion activity levels we foresee at this time, our high-quality asset base allows us to continue to maintain an ample inventory of drilling locations, which can be exploited to facilitate resumed production growth when market conditions improve."

The spending cuts will consist primarily of reduced well completion activity in Mississippi and reduced drilling and completion activity in the Midcontinent region and in South Louisiana.

In its Lower Bossier Shale holdings in East Texas, Penn Virginia determined that the Agnor No. 6-H, a recently completed well drilled to test the formation in the outer perimeter of its acreage position in Harrison County, TX, was unsuccessful. However, on the far western side of acreage the Hatley No. 15-H well was completed "and early indications appear positive," the company said.

As of Thursday, Penn Virginia said total outstanding borrowings under its revolving credit facility were $384.0 million, with remaining availability of $95 million. In 2Q2009, the borrowing base supporting revolving credit facility is to be "redetermined by the bank group," it said. "In spite of significantly increased proved reserves as of Dec. 31, 2008, the company expects the current $479 million borrowing base will be reset to a lower level as a result of the weakened commodity price environment."

To date Penn Virginia has hedged 71 MMcf/d of gas output, or more than 60% of expected output this year. It also has hedged 500 b/d of crude output, or around 30% of its expected annual volumes.

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