Onshore unconventional natural gas producer Penn Virginia Corp. said Friday it will concentrate its exploration activities in oily and liquids-rich plays in 2011 and will spend 40% less than it did this year because of a “weak natural gas price environment and outlook.”

The producer plans to spend $290 million in 2011, down from $475 million this year.

“We have adjusted our capital spending plans to reflect changing market conditions while continuing to provide production and reserve growth,” said CEO A. James Dearlove. “We believe that our program for 2011 provides new growth opportunities, which will meaningfully increase our oil and liquids production and allow us to succeed in the current commodity price environment.”

In the coming year the independent intends to focus on “higher-return play types that are oily or liquids-rich and to defer drilling of the gassier, and largely held-by-production, Haynesville Shale and Cotton Valley in East Texas and Selma Chalk in Mississippi.”

Capital spending would be funded “entirely by internally generated cash flows and over $500 million of financial liquidity at the beginning of 2011, comprised of cash on hand, committed availability under our revolving credit facility ($300 million) and an additional $120 million of borrowing base availability.”

Included in next year’s spending plans is about $240 million for development, and exploratory drilling and completion expenditures, mostly associated with horizontal drilling; about $25 million for leasehold acquisition, and $18 million for geological and geophysical expenditures.

“Capital expenditures in 2011 will primarily target the Granite Wash and other play types in Oklahoma, the Eagle Ford Shale in South Texas and the Marcellus Shale in Pennsylvania. Approximately $212 million, or 73% of the capital budget, relates to oily and liquids-rich play types, and we expect that oil and liquids production will constitute 25-30% of our expected 2011 production, a significant increase from the approximately 17-18% oil and liquids contribution to production expected in 2010.”

Production in 2011 is expected to be 50-54 Bcfe, which is 11% higher than 2010 production guidance of 46.5-47.5 Bcfe.

“Due to natural declines in production from the Haynesville Shale, Cotton Valley and Selma Chalk, and given that we expect initial production contributions from the Eagle Ford Shale and Marcellus Shale to begin in mid-2011, we expect the majority of 2011 production will occur in the second half of the year,” said the company. “Furthermore, we expect the large majority of the year/year production increase to come from the Granite Wash play in the Midcontinent region.”

Penn Virginia expects to drill up to 91 wells (38.8 net) in 2011, with a focus in three areas:

The capital budget assumes base New York Mercantile Exchange commodity prices of $4.25/MMBtu for natural gas and $80.00/bbl for crude oil. Penn Virginia has hedged about 40% of the midpoints of expected 2011 natural gas at a weighted average floor and ceiling price of $5.37-6.98/MMBtu. About 12% of crude oil is hedged in the coming year at $80-102/bbl.