The Penn Virginia Doubletake
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“Occasionally people will look at me and do a doubletake and they'll look at me like they're trying to think where they know me from” - Nick Hoult
Editor’s note: Day late -
PVAC.
We did a doubletake on PVAC…
Penn Virginia’s wells, and our December look at Magnolia - another oily Eagle Ford E&P - caught our eyes.
PVAC is an Eagle Ford E&P company headquartered in Houston:
The company focuses on Lavaca & Gonzales Counties
Juniper Capital now owns ~60% of PVAC
From PVAC’s most recent operational update:
16,324 bbl/d
20,534 boe/d
80% oil cut
$364MM net debt (the equity is trading at a ~$500MM valuation)
PVAC’s latest reserve report lists 500 future locations:
They own ~91,000 net acres in the EFS
We built out type curve parameters (using ’19 & ’20 vintage wells) with ShaleProfile‘s state-level data.
A $52.5 WTI break-even is pretty good, in our minds.
On a multiples basis, PVAC looked good, too.
On top of that, their well efficiencies have been improving 15% per year over the last 3yrs (on both a total EUR basis & per 1000ft drilled), which is pretty rare.
So, the plan was to write up another (surprisingly boring) story about an E&P just drilling good wells…
…and then we looked at the capital structure…
And we found senior debt, junior debt, preferred shares, dividend restrictions, and a HoldCo / SubCo structure w/ one shareholder controlling 59%…
OK, not so boring.
At this point, we decided to throw the quick-and-dirty analysis out the window and focus on the assets.
So we ran a production forecast & built out the model.
We sensitized what we found:
For this analysis, we ran a prod forecast using 3rd party data, covering 500 operated PDP wells owned by PVAC
The above results represent NAV sensitivities (PDPs + PUDs - $ in MM) of PVAC’s wells
Inventory is drilled over 8 years
Our 2021 Oil Production is 18,209k/bbl
Two major take-aways:
At the current strip, PVAC seems to be overvalued
PVAC is more sensitive to the price of oil than drilling inventory depth
A 25% increase in WTI - from $60 to $75 - translates to a ~100% increase in value:
A good way to value an E&P like PVAC is to apply probabilities to the above table, and take the sum (of the each scenario multiplied by the assigned probability)
Doing so would likely result in a higher valuation than a point-estimate using today’s strip which is in steep backwardation
We expected to see this sensitivity to the price of oil with PVAC.
We did not expect the valuation - at today’s strip - to be so low.
[to be fair, we think Juniper did very well w/ their November investment]
The whiplash from looking at this E&P felt all-too familiar.
US E&Ps are never as simple as they look from the surface (or the screen) -
OTHER NEWS.
Doug Lawler is abruptly retiring
On tax policy - an argument made twice in one week
That’s it for this week - the Ohtani dream has come to life - catch y’all next week -