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The Penn Virginia Doubletake

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The Penn Virginia Doubletake

Pierre Follea
Apr 28, 2021
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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.

From ShaleProfile - message Enno & try it out

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

  • Another Guyana discovery for Hess & Co

  • 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 -

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